<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998
SECURITIES ACT FILE NO. 333-41617
INVESTMENT COMPANY ACT FILE NO. 811-08539
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 3
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
------------------------
CVS AUTOMATIC
COMMON EXCHANGE SECURITY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
C/O GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 902-1000
KENNETH L. JOSSELYN, ESQ.
85 BROAD STREET
NEW YORK, NEW YORK 10004
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
ROBERT E. BUCKHOLZ, JR., ESQ.
SULLIVAN & CROMWELL
125 BROAD STREET
NEW YORK, NEW YORK 10004
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
[ ] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is 333- .
------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
====================================================================================================================
TITLE OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Trust Automatic Common Exchange Securities........ $209,229,922 $61,723(2)
====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Of which $2,950 was previously paid by the Registrant in connection with the
initial filing of this registration statement on December 5, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
CVS AUTOMATIC COMMON EXCHANGE SECURITY TRUST
CROSS-REFERENCE SHEET
(PURSUANT TO RULE 404(C) UNDER THE SECURITIES ACT OF 1933)
PART A & B OF PROSPECTUS*
<TABLE>
<CAPTION>
ITEM
NUMBER CAPTION LOCATION IN PROSPECTUS
- ------ ------- ----------------------
<C> <S> <C>
1. Outside Front Cover............. Front Cover Page
2. Inside Front and Outside Back
Cover Page.................... Front Cover Page; Inside Front Cover Page; Outside
Back Cover Page
3. Fee Table and Synopsis.......... Prospectus Summary; Fee Table
4. Financial Highlights............ Not Applicable
5. Plan of Distribution............ Front Cover Page; Prospectus Summary; Underwriting
6. Selling Shareholders............ Not Applicable
7. Use of Proceeds................. Use of Proceeds; Investment Objective and Policies
8. General Description of the
Registrant.................... Front Cover Page; Prospectus Summary; The Trust;
Investment Objective and Policies; Risk Factors
9. Management...................... Management and Administration of the Trust
10. Capital Stock, Long-Term Debt
and Other Securities.......... Investment Objective and Policies; Description of
the Securities; Certain Federal Income Tax
Considerations
11. Defaults and Arrears on Senior
Securities.................... Not Applicable
12. Legal Proceedings............... Not Applicable
13. Table of Contents of the
Statement of Additional
Information................... Not Applicable
14. Cover Page...................... Not Applicable
15. Table of Contents............... Not Applicable
16. General Information and
History......................... The Trust
17. Investment Objective and
Policies...................... Investment Objective and Policies
18. Management...................... Management and Administration of the Trust
19. Control Persons and Principal
Holders of Securities......... Management and Administration of the Trust
20. Investment Advisory and Other
Services...................... Management and Administration of the Trust
21. Brokerage Allocation and Other
Practices..................... Investment Objective and Policies
22. Tax Status...................... Certain Federal Income Tax Considerations
23. Financial Statements............ Statement of Assets and Liabilities
</TABLE>
- ---------------
* Pursuant to the General Instructions to Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus. Information required to be included in Part C is
set forth under the appropriate item so numbered in Part C of this
Registration Statement.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 15, 1998
2,650,000 SHARES
CVS AUTOMATIC COMMON EXCHANGE SECURITY TRUST
$ . TRUST AUTOMATIC COMMON EXCHANGE SECURITIES (TRACES (TM/SM))
(SUBJECT TO EXCHANGE INTO SHARES OF COMMON STOCK OF CVS CORPORATION)
------------------------
Each of the $ . Trust Automatic Common Exchange Securities (the
"Securities") of CVS Automatic Common Exchange Security Trust (the "Trust")
represents the right to receive an annual distribution of $ , and will be
exchanged for between 0. shares and one share of Common Stock, par value
$.01 per share (the "Common Stock"), of CVS Corporation (the "Company") on the
Exchange Date as described below.
The Trust is a newly organized, finite-term Trust established to acquire
and hold a portfolio of stripped U.S. Treasury securities maturing on a
quarterly basis through the Exchange Date, and a forward purchase contract (the
"Contract") with an existing stockholder of the Company (the "Seller") relating
to the Common Stock. The Trust's investment objective is to provide each holder
of Securities (each, a "Holder") with a quarterly distribution of $ . per
Security and, on the Exchange Date, a number of shares of Common Stock per
Security equal to the Exchange Rate.
The Exchange Date will be May , 2001, except that (i) the Seller may
elect to extend the Exchange Date to August , 2001, provided the Seller
delivers to the Trust additional U.S. Treasury securities sufficient to fund the
Trust's quarterly distribution on such date, and (ii) following such an
extension, the Seller may accelerate the Exchange Date to a date not earlier
than May , 2001, in connection with the consummation of a Rollover Offering.
Notwithstanding any such extension or acceleration, Holders will be entitled to
receive the quarterly distribution payable on May , 2001, and the accrued
distribution amount through the Exchange Date, if later.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price (as defined herein) of the Common Stock on the Exchange
Date:
- if the Average Market Price is less than the Appreciation Threshold Price
but equal to or greater than the Initial Price, the Exchange Rate will be
the number of shares of Common Stock having a value (determined at the
Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0. shares of Common Stock; and
- if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Common Stock.
For purposes of this formula, the Appreciation Threshold Price is $ and
the Initial Price is $ . The formula will be subject to adjustment in
certain events.
(continued on next page)
SEE "RISK FACTORS" ON PAGE 21 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO PUBLIC SALES LOAD (1) THE TRUST(2)
--------------- -------------- ------------
<S> <C> <C> <C>
Per Security............................................. $ $ (4) $
Total(3)................................................. $ $ (4) $
</TABLE>
- ---------------
(1) The Company and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Underwriting".
(2) Expenses of the offering, which are payable by the Seller, are estimated to
be $ .
(3) The Trust has granted to the Underwriters an option for 30 days to purchase
up to an additional Securities at the price to the public per Security,
solely to cover over-allotments. If the option is exercised in full, the
total Price to Public, Sales Load and Proceeds to the Trust will be
$ , $ and $ , respectively. See "Underwriting".
(4) In light of the fact that the proceeds of the sale of the Securities will be
used in part by the Trust to purchase the Contract from the Seller, the
Underwriting Agreement provides that the Seller will pay to the underwriters
as compensation ("Underwriters' Compensation") $ . per Security. See
"Underwriting".
------------------------
The Securities are offered severally by the Underwriters, as specified
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that the Securities will be
ready for delivery in book entry form only through the facilities of The
Depository Trust Company, on or about May , 1998, against payment in
immediately available funds.
GOLDMAN, SACHS & CO.
------------------------
The date of this Prospectus is May , 1998.
<PAGE> 4
(continued from cover page)
In lieu of delivering Common Stock, the Contract entitles the Seller to
elect to pay cash upon settlement of such Contract in an amount equal to the
then Average Market Price of the number of shares of Common Stock determined
pursuant to the above formula (the "Cash Settlement Alternative"). To the extent
the Seller elects the Cash Settlement Alternative, Holders of Securities will
receive cash instead of Common Stock upon settlement of the Contract. Holders
otherwise entitled to receive fractional shares in respect of their aggregate
holdings of Securities will receive cash in lieu thereof.
Holders of Securities will receive distributions at a higher annual rate
than the current annual dividends paid on the Common Stock. There is no
assurance, however, that the yield on the Securities will be higher than the
dividend yield on the Common Stock over the term of the Trust. In addition, the
opportunity for equity appreciation afforded by an investment in the Securities
is less than that afforded by an investment in the Common Stock because Holders
of Securities will realize no equity appreciation if, on the Exchange Date, the
Average Market Price of the Common Stock is at or below the Appreciation
Threshold Price, and less than all of the appreciation if at that time the
Average Market Price is above the Appreciation Threshold Price. Holders of
Securities will realize the entire decline in equity value if the Average Market
Price is less than the price to public per Security shown below.
The Company is not affiliated with the Trust and will have no obligations
with respect to the Securities.
Application will be made to list the Securities on the New York Stock
Exchange under the symbol . Prior to this offering there has been no
public market for the Securities. The last reported sale price of the Common
Stock on the New York Stock Exchange on May 13, 1998, was $68 7/8 per share.
The Trust has adopted a policy that the Contract may not be disposed of
during the term of the Trust. The Trust will continue to hold the Contract
despite any significant decline in the market price of the Common Stock or
adverse changes in the financial condition of the Company.
This Prospectus sets forth concisely information about the Trust that a
prospective investor ought to know before investing. Potential investors are
advised to read this Prospectus and to retain it for future reference.
The Securities may be a suitable investment for those investors who are
able to understand the unique nature of the Trust and the economic
characteristics of the Contract and the U.S. Treasury securities held by the
Trust.
The Trust will be a grantor trust for federal income tax purposes and each
holder of Securities will be treated as the owner of its pro rata portions of
the stripped U.S. Treasury securities and the Contract. For a discussion of the
principal United States federal income tax consequences of ownership of
Securities, see "Certain Federal Income Tax Considerations".
THE TRUST IS A NEWLY ORGANIZED CLOSED-END INVESTMENT COMPANY WITH NO
PREVIOUS HISTORY OF PUBLIC TRADING. TYPICAL CLOSED-END FUND SHARES FREQUENTLY
TRADE AT A DISCOUNT FROM NET ASSET VALUE. THIS CHARACTERISTIC OF INVESTMENTS IN
A CLOSED-END INVESTMENT COMPANY IS A RISK SEPARATE AND DISTINCT FROM THE RISK
THAT THE TRUST'S NET ASSET VALUE WILL DECREASE. THE TRUST CANNOT PREDICT WHETHER
ITS SHARES WILL TRADE AT, BELOW OR ABOVE NET ASSET VALUE. THE RISK OF PURCHASING
INVESTMENTS IN A CLOSED-END COMPANY THAT MIGHT TRADE AT A DISCOUNT MAY BE
GREATER FOR INVESTORS WHO WISH TO SELL THEIR INVESTMENTS SOON AFTER COMPLETION
OF AN INITIAL PUBLIC OFFERING.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING". SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
This summary of the provisions relating to the Securities does not purport
to be complete and is qualified in its entirety by the detailed information
appearing elsewhere in this Prospectus. Certain terms used in this summary are
defined elsewhere in this Prospectus.
THE TRUST
GENERAL. The Trust is a newly organized, finite-term trust. The Trust will
be registered as a non-diversified closed-end management investment company
under the Investment Company Act of 1940 (the "Investment Company Act"). Under
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable to grantor trusts, the Trustees will not have the power to vary the
investments held by the Trust.
INVESTMENT OBJECTIVE AND POLICIES. The Trust will acquire and hold a
portfolio of stripped U.S. Treasury securities maturing on a quarterly basis
through the Exchange Date, and the Contract with the Seller obligating the
Seller, on the Exchange Date, to deliver to the Trust a number of shares of
Common Stock equal to the product of the Exchange Rate times the initial number
of shares subject to the Seller's Contract (or an amount of cash equal to the
Average Market Price thereof). The Trust's investment objective is to provide
the Holders of Securities with a quarterly distribution of $. per Security
(which amount equals the pro rata portion of the fixed quarterly cash
distributions from the proceeds of the maturing U.S. Treasury securities held by
the Trust) and, on the Exchange Date, a number of shares of Common Stock per
Security equal to the Exchange Rate (or to the extent the Seller elects the Cash
Settlement Alternative, an amount in cash equal to the Average Market Price
thereof).
The Exchange Date will be May , 2001, except that (i) the Seller may
elect to extend the Exchange Date to August , 2001 (subject to subsequent
acceleration at the election of the Seller), provided the Seller delivers to the
Trust additional U.S. Treasury Securities sufficient to fund the Trust's
quarterly distribution on such date, and (ii) following such an extension, the
Seller may accelerate the Exchange Date, to a date not earlier than May ,
2001, in connection with the consummation of a Rollover Offering. The Holders of
record on the regular quarterly record date will receive the full scheduled
quarterly distribution on May , 2001. If the Exchange Date occurs after May
, 2001, the Holders of record on the Exchange Date will receive unpaid
distributions accruing to the Exchange Date but not thereafter.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price (as defined herein) of the Common Stock on the Exchange
Date:
- if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange Rate
will be the number of shares of Common Stock having a value (determined
at the Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0. shares of Common
Stock; and
- if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Common Stock.
For purposes of this formula, the Appreciation Threshold Price is
$ and the Initial Price is $ . The formula will be subject to
adjustment in certain events.
The Exchange Rate formula provides the Trust with the potential for a
portion of any capital appreciation above the Appreciation Threshold Price on
the Common Stock, but no protection from depreciation of the Common Stock.
Holders otherwise entitled to receive fractional shares in respect of their
aggregate holdings of Securities will receive cash in lieu thereof. See
"Investment Objective and Policies -- Trust Termination".
3
<PAGE> 6
STRUCTURE. The purchase price under the Contract is equal to $
per share of Common Stock initially subject thereto and $ (2,650,000 shares
of Common Stock) in the aggregate (assuming no exercise of the Underwriters'
over-allotment option) and is payable to the Seller by the Trust at the closing
of the offering of the Securities, out of the proceeds of such offering. The
obligations of the Seller under the Contract will be secured by a pledge of the
Common Stock (or at the election of the Seller, by substitute collateral
consisting of short-term, direct obligations of the U.S. Government). See
"Investment Objective and Policies -- The Contracts -- Collateral Arrangements;
Acceleration."
The balance of the offering proceeds will be used to purchase a fixed
portfolio comprised of stripped U.S. Treasury securities with face amounts and
maturities corresponding to the quarterly distributions payable with respect to
the Securities through May , 2001. The Seller may extend the Exchange Date
to August , 2001 (subject to subsequent acceleration at the election of the
Seller), provided it delivers to Trust, on or prior to May , 2001,
additional U.S. Treasury securities with face amounts and maturities
corresponding to the quarterly distribution payable with respect to the
Securities on August , 2001. The Seller will be entitled, under the
Contract, to repurchase such additional U.S. Treasury securities from the Trust
on or prior to the Exchange Date, at a price equal to the aggregate unpaid
distributions on the Securities accruing to the Exchange Date.
THE OFFERING
The Trust is offering 2,650,000 Securities to the public at a purchase
price of $ per Security (which is equal to the last reported sale price
of the Common Stock on the date of this Prospectus) through Goldman, Sachs & Co.
("Goldman Sachs" or the "Underwriters"). In addition, the Underwriters have been
granted options to purchase up to 397,500 additional Securities solely for the
purpose of covering over-allotments. See "Underwriting".
THE SECURITIES
GENERAL. The Securities are designed to provide investors with a higher
distribution per Security than the dividend currently paid per share on the
Common Stock. The annual distribution per Security is $ . Based on the
current annual dividend rate of $.44 per share of Common Stock, the annual per
share distribution per Security is $ greater than the current annual
per share dividend rate on the Common Stock. Future declarations of dividends on
the Common Stock by the Company and the amount of such dividends are
discretionary with its Board of Directors and subject to legal and other
factors. Such further declarations will necessarily depend on the Company's
future earnings, financial condition, capital requirements and other factors.
Quarterly distributions on the Securities will consist solely of the cash
received from the U.S. Treasury securities. The Trust will not be entitled to
any dividends that may be declared on the Common Stock. A portion of each year's
distributions on the Securities will constitute a return of capital for U.S.
federal income tax purposes. See "Investment Objectives and Policies -- Tax
Treatment of Distributions".
Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Common Stock. There is no assurance, however, that
the yield on the Securities will be higher than the dividend yield on the Common
Stock over the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less than that
afforded by an investment in the Common Stock because Holders will realize no
equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is at or below the Appreciation Threshold Price (which represents
an appreciation of % of the Initial Price). Moreover, because a Holder will
only receive 0. shares of Common Stock per Security (or the Average Market
Price thereof) if the Average Market Price exceeds the Appreciation Threshold
Price, Holders will only be entitled to receive upon exchange % of any
appreciation of the value of the Common Stock in excess of the Appreciation
Threshold Price. Holders of Securities will
4
<PAGE> 7
realize the entire decline in equity value if the Average Market Price on the
Exchange Date is less than the price to public per Security shown on the cover
page hereof.
DISTRIBUTIONS. Holders are entitled to receive distributions at the rate
per Security of $ per annum or $ per quarter, payable
quarterly on each February , May , August and November or, if any such
date is not a business day, on the next succeeding business day, to Holders of
record as of each February , May , August and November , respectively.
The first distribution will be payable on August , 1998 to Holders of record
as of August , 1998. See "Investment Objective and Policies -- Tax Treatment
of Distributions".
MANDATORY EXCHANGE. On the Exchange Date, each outstanding Security will
be exchanged automatically for between 0. shares and one share of Common Stock,
subject to adjustment in the event of certain dividends or distributions,
subdivisions, splits, combinations, issuances of certain rights or warrants or
distributions of certain assets with respect to the Common Stock. In lieu of
delivering Common Stock, the Contract entitles the Seller to elect to pay cash
upon settlement of the Contract in an amount equal to the then Average Market
Price of the number of shares of Common Stock determined pursuant to the above
formula (the "Cash Settlement Alternative"). To the extent the Seller elects the
Cash Settlement Alternative, Holders of Securities will receive cash instead of
Common Stock on the Exchange Date.
The "Average Market Price" per share of Common Stock on any date means the
average Closing Price per share of Common Stock for the 20 Trading Days
immediately prior to, but not including, such date, provided that for purposes
of determining the payment required upon cash settlement of the Contract in
connection with a Rollover Offering, "Average Market Price" means the Closing
Price per share of Common Stock on the Trading Day immediately preceding the
date that the Rollover Offering is priced (the "Pricing Date") or, if the
Rollover Offering is priced after 4:00 P.M., New York City time, on the Pricing
Date, the Closing Price per share on the Pricing Date.
"Rollover Offering" means a reoffering or refinancing of all (but not less
than all) of the Securities effected not earlier than May , 2001 by means of a
completed public offering or offerings (which may include one or more exchange
offers) by or on behalf of the Seller. The Trustees will notify the Holders of
(i) any election of the Cash Settlement Alternative, and whether it is intended
to be in connection with a Rollover Offering, not less than 30 nor more than 90
days prior to the Exchange Date, and (ii) any acceleration of the Exchange Date
in connection with a Rollover Offering, not later than the Exchange Date.
In addition, in the event of a merger of the Company with another entity,
or the liquidation of the Company, or certain related events, Holders would
receive consideration in the form of cash or Marketable Securities (as defined
below under the caption "Investment Objective and Policies -- The
Contract -- Dilution Adjustments") rather than shares of Common Stock. Further,
the occurrence of certain defaults by the Seller under the Contract or the
collateral arrangements would cause the acceleration of the Contract and the
exchange of each Security for an amount of shares of Common Stock (or Marketable
Securities), cash, or a combination thereof, in respect of the shares of Common
Stock and the U.S. Treasury Securities. See "Investment Objective and
Policies -- The Contract -- Collateral Arrangements; Acceleration"; "--The U.S.
Treasury Securities" and "--Trust Termination".
VOTING RIGHTS. Holders will have the right to vote on matters affecting
the Trust, as described below under the caption "Description of the Securities",
but will have no voting rights with respect to the Common Stock prior to receipt
of shares of Common Stock by the Holders as a result of the exchange of the
Securities for the Common Stock on the Exchange Date or upon earlier settlement.
See "Investment Objective and Policies -- The Company" and "Description of the
Securities".
5
<PAGE> 8
THE COMPANY
The Company is a leader in the chain drugstore industry in the United
States. As of March 31, 1998, after giving effect to the merger with Arbor
Drugs, Inc. completed on March 31, 1998, the Company operated approximately
4,100 stores in 25 states in the Northeast, Mid-Atlantic, Midwest and Southeast
regions and in the District of Columbia, making the Company one of the largest
drugstore chains in the nation in terms of store count. The combined Company is
expected to have revenues of approximately $15 billion in 1998. The Company's
stores are well positioned, operating in 49 of the top 100 drugstore markets in
the country. The Company commands the number one or two share position in
approximately 80% of these markets. The Company is also among the industry
leaders in terms of store productivity and operating profit margin.
On May 13, 1998, the Board of Directors of the Company declared a
two-for-one stock split (the "Stock Split") of the Common Stock distributable on
June 15, 1998 to its stockholders of record on May 25, 1998. The Board of
Directors also increased the dividend rate on the Common Stock after the Stock
Split. In that regard, the Board declared a quarterly cash dividend of $0.0575
per share, payable on August 1, 1998 to stockholders of record on July 23, 1998.
The historical information contained herein has not been adjusted to reflect the
Stock Split.
Reference is made to the accompanying prospectus of the Company (pages A-1
through A-31 hereto) which describes the Company and the shares of Common Stock
of the Company deliverable to the Holders upon mandatory exchange of the
Securities on the Exchange Date. The Company is not affiliated with the Trust
and will not receive any of the proceeds from the sale of the Securities. The
Company will have no obligations with respect to the Securities. The Company
prospectus relates to an aggregate 2,650,000 of shares of Common Stock (plus an
additional 397,500 shares that may be delivered upon exercise of the
Underwriters' over-allotment option).
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Trust will be treated as a grantor trust for federal income tax
purposes. Accordingly, each Holder will be treated for federal income tax
purposes as the owner of its pro rata portion of the U.S. Treasury securities
and the Contract initially acquired by the Trust, and income received (including
original issue discount treated as received) by the Trust will generally be
treated as income of the Holders. The U.S. Treasury securities initially
acquired by the Trust will be treated for federal income tax purposes as having
"original issue discount" that will accrue over the term of such U.S. Treasury
securities. Actual receipts of cash in respect of such U.S. Treasury securities
will not be included in income, however, but rather will reduce the aggregate
tax basis of the Securities. A holder will have taxable gain or loss upon
receipt by the Trust of cash in lieu of Common Stock. Holders should also be
aware that there are alternative characterizations of the assets of the Trust
and the Securities which could require Holders to include more interest in
income than they would include in income under the analysis set out above. See
"Certain Federal Income Tax Considerations".
MANAGEMENT AND ADMINISTRATION OF THE TRUST
The Trust will be internally managed and will not have an investment
adviser. The administration of the Trust will be overseen by three Trustees. The
day-to-day administration of the Trust will be carried out by The Chase
Manhattan Bank (or its successor) as trust administrator (the "Administrator").
The Chase Manhattan Bank will also act as custodian (the "Custodian") for the
Trust's assets and ChaseMellon Shareholder Services, L.L.C. (or its successor)
will act as paying agent (the "Paying Agent"), registrar and transfer agent with
respect to the Securities. Except as aforesaid, The Chase Manhattan Bank and
ChaseMellon Shareholder Services, L.L.C. have no other affiliation with, and are
not engaged in any other transaction with, the Trust. See "Management and
Administration of the Trust".
6
<PAGE> 9
LIFE OF THE TRUST
The Trust will terminate automatically on or shortly after the Exchange
Date. Promptly after the Exchange Date the shares of Common Stock or cash, as
the case may be, to be exchanged for the Securities and other remaining Trust
assets, if any, will be distributed pro rata to Holders. See "Investment
Objective and Policies -- Trust Termination".
RISK FACTORS
The Trust will not be managed in the traditional sense. The Trust has
adopted a policy that the Contract may not be disposed of during the term of the
Trust and that the U.S. Treasury securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities and the
termination of the Trust. The Trust will continue to hold the Contract despite
any significant decline in the market price of the Common Stock or adverse
changes in the financial condition of the Company. See "Risk Factors -- Internal
Management; No Portfolio Management" and "Management and Administration of the
Trust -- Trustees".
Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Common Stock. There is no assurance, however, that
the yield on the Securities will be higher than the dividend yield on the Common
Stock over the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less than that
afforded by an investment in the Common Stock because Holders will realize no
equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is below the Appreciation Threshold Price (which represents an
appreciation of % of the Initial Price). Moreover, because a Holder will
only receive 0. shares of Common Stock per Security (or the Average Market Price
thereof) if the Average Market Price exceeds the Appreciation Threshold Price,
Holders will only be entitled to receive upon exchange % of any
appreciation of the value of the Common Stock in excess of the Appreciation
Threshold Price. Holders of Securities will realize the entire decline in equity
value if the Average Market Price on the Exchange Date is less than the price to
public per Security shown on the cover page hereof.
The Trust is classified as a "non-diversified" investment company under the
Investment Company Act. Consequently, the Trust is not limited by the Investment
Company Act in the proportion of its assets that may be invested in the
securities of a single issuer. Since the only assets held by the Trust will be
the U.S. Treasury securities and the Contract, the Trust will be subject to
greater risk than would be the case for an investment company with diversified
investments. See "Investment Objective and Policies" and "Risk
Factors -- Non-Diversified Status".
The trading prices of the Securities in the secondary market will be
directly affected by the trading prices of the Common Stock in the secondary
market. Trading prices of Common Stock will be influenced by the Company's
operating results and prospects and by economic, financial and other factors and
market conditions.
Holders of the Securities will not be entitled to any rights with respect
to the Common Stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions in respect thereof) unless and
until such time, if any, as the Seller shall have delivered shares of Common
Stock pursuant to the Contract.
LISTING
Application will be made to list the Securities on the New York Stock
Exchange (the "NYSE") under the symbol .
7
<PAGE> 10
FEES AND EXPENSES
In light of the fact that the proceeds of the sale of the Securities will
be used in part by the Trust to purchase the Contract from the Seller, the
Underwriting Agreement provides that the Seller will pay Underwriters'
Compensation to the Underwriters of $ . per Security. See
"Underwriting". Estimated organization costs of the Trust in the amount of
$10,000 and estimated costs of the Trust in connection with the initial
registration and public offering of the Securities in the amount of $
will be paid by Goldman, Sachs & Co. Each of the Administrator, the Custodian
and the Paying Agent, and each Trustee will be paid by Goldman, Sachs & Co. at
the closing of the offering of the Securities a one-time, up-front amount in
respect of its ongoing fees and, in the case of the Administrator, anticipated
expenses of the Trust (estimated to be $ in the aggregate), over the
term of the Trust. Goldman, Sachs & Co. have agreed to pay any on-going expenses
of the Trust in excess of these estimated amounts and to reimburse the Trust for
any amounts it may be required to pay as indemnification to any Trustee, the
Administrator, the Custodian or the Paying Agent. See "Management and
Administration of the Trust -- Estimated Expenses".
Regulations of the Securities and Exchange Commission ("SEC") applicable to
closed-end investment companies designed to assist investors in understanding
the costs and expenses that an investor will bear directly or indirectly require
the presentation of Trust expenses in the following format. Because the Trust
will not bear any fees or expenses, investors will not bear any direct expenses.
The only expenses that an investor might be considered to be bearing indirectly
are (i) the Underwriters' Compensation payable by the Seller with respect to
such investor's Securities and (ii) the ongoing expenses of the Trust (including
fees of the Administrator, Custodian, Paying Agent and Trustees), estimated at
$ per year, payable by Goldman, Sachs & Co. at the closing of the
offering. See "Investment Objective and Policies -- General".
<TABLE>
<S> <C>
INVESTOR TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).............. %
Dividend Reinvestment and Cash Purchase Plan Fees........... N/A
ANNUAL EXPENSES
Management Fees............................................. 0%
Other Expenses.............................................. %
---
Total Annual Expenses.................................. %
===
</TABLE>
SEC regulations also require that closed-end investment companies present
an illustration of cumulative expenses (both direct and indirect) that an
investor would bear. The example is required to factor in the applicable Sales
Load and to assume, in addition to a 5% annual return, the reinvestment of all
distributions at net asset value. INVESTORS SHOULD NOTE THAT THE ASSUMPTION OF A
5% ANNUAL RETURN DOES NOT ACCURATELY REFLECT THE FINANCIAL TERMS OF THE TRUST.
SEE "INVESTMENT OBJECTIVE AND POLICIES -- GENERAL". ADDITIONALLY, THE TRUST DOES
NOT PERMIT THE REINVESTMENT OF DISTRIBUTIONS.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------- -------- --------
<S> <C> <C>
You would bear the following expenses (i.e., the applicable
sales load and allocable portion of ongoing expenses paid
by the Seller) on a $1,000 investment, assuming a 5%
annual return............................................. $ $
</TABLE>
8
<PAGE> 11
THE TRUST
The Trust is a newly organized New York trust and is registered as a
closed-end investment company under the Investment Company Act. The Trust was
formed on December 5, 1997 pursuant to a trust agreement dated as of such date
and amended and restated as of May , 1998. The address of the Trust is 85
Broad Street, New York, New York 10004 (telephone no. (212) 902-1000).
USE OF PROCEEDS
The net proceeds of this offering will be used immediately upon the closing
of this offering (a) to purchase a fixed portfolio comprised of stripped U.S.
Treasury securities with face amounts and maturities corresponding to the
quarterly distributions payable with respect to the Securities and the payment
dates thereof, and (b) to pay the purchase price under the Contract to the
Seller.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust will acquire and hold a portfolio of stripped U.S. Treasury
securities maturing on a quarterly basis through the Exchange Date and the
Contract relating to the Common Stock of the Company. The Trust's investment
objective is to provide each Holder with a quarterly cash distribution of
$ . per Security (which amount equals the pro rata portion of the fixed
quarterly distributions from the proceeds of the maturing U.S. Treasury
securities held by the Trust) and, on the Exchange Date, a number of shares of
Common Stock per Security equal to the Exchange Rate (or to the extent the
Seller selects the Cash Settlement Alternative, an amount in cash equal to the
Average Market Price thereof).
The Exchange Date will be May , 2001, except that (i) the Seller may
elect to extend the Exchange Date to August , 2001 (subject to subsequent
acceleration at the election of the Seller), provided the Seller delivers to the
Trust additional U.S. Treasury securities sufficient to fund the Trust's
quarterly distribution on such date, and (ii) following such an extension, the
Seller may accelerate the Exchange Date, to a date not earlier than May ,
2001, in connection with the consummation of a Rollover Offering. The Holders of
record on the regular quarterly record date will receive the full scheduled
quarterly distribution on May , 2001. If the Exchange Date occurs after May
, 2001, the Holders of record on the Exchange Date will receive unpaid
distributions accruing to the Exchange Date, but not thereafter.
The Exchange Rate will vary in accordance with a formula, depending on the
Average Market Price of the Common Stock on the Exchange Date:
- if the Average Market Price is less than the Appreciation Threshold
Price but equal to or greater than the Initial Price, the Exchange Rate
will be the number of shares of Common Stock having a value (determined
at the Average Market Price) equal to the Initial Price;
- if the Average Market Price is equal to or greater than the Appreciation
Threshold Price, the Exchange Rate will be 0. shares of Common
Stock; and
- if the Average Market Price is less than the Initial Price, the Exchange
Rate will be one share of Common Stock.
The formula will be subject to adjustment in certain events. See "--The
Contract -- Dilution Adjustments". For purposes of the first part of the
formula, the Exchange Rate will be rounded upward or downward to the nearest
1/10,000 (or if there is not a nearest 1/10,000, to the next
9
<PAGE> 12
lower 1/10,000). Holders otherwise entitled to receive fractional shares in
respect of their aggregate holdings of Securities will receive cash in lieu
thereof. See "--Trust Termination".
The "Average Market Price" per share of Common Stock on any date means the
average Closing Price (as defined below) of a share of Common Stock on the 20
Trading Days (as defined below) immediately prior to but not including such
date, provided that for purposes of determining the payment required upon cash
settlement of the Contract in connection with a Rollover Offering, "Average
Market Price" means the Closing Price per share of Common Stock on the Trading
Day immediately preceding the date that the Rollover Offering is priced (the
"Pricing Date") or, if the Rollover Offering is priced after 4:00 P.M., New York
City time, on the Pricing Date, the Closing Price per share on the Pricing Date.
"Rollover Offering" means a reoffering or refinancing of all (but not less
than all) of the Securities effected not earlier than May , 2001, by means of
a completed public offering or offerings (which may include one or more exchange
offers) by or on behalf of the Seller.
The "Closing Price" of the Common Stock on any date of determination means
the daily closing sale price (or, if no closing sale price is reported, the last
reported sale price) of the Common Stock as reported on the NYSE Consolidated
Tape on such date of determination or, if the Common Stock is not listed for
trading on the NYSE on any such date, as reported in the composite transactions
for the principal United States securities exchange on which the Common Stock is
so listed, or if the Common Stock is not so listed on a United States national
or regional securities exchange, as reported by The NASDAQ National Market or,
if the Common Stock is not so reported, the last quoted bid price for the Common
Stock in the over-the-counter market as reported by the National Quotation
Bureau or similar organization, provided that if any event that results in an
adjustment to the number of shares of Common Stock deliverable under the
Contract as described under "--The Contract -- Dilution Adjustments" occurs
prior to the Exchange Date, the Closing Price as determined pursuant to the
foregoing will be appropriately adjusted to reflect the occurrence of such
event.
A "Trading Day" means a day on which the Common Stock (A) is not suspended
from trading on any national or regional securities exchange or association or
over-the-counter market at the close of business and (B) has traded at least
once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of such
security.
A fundamental policy of the Trust is to invest at least 70% of its total
assets in the Contract. The Trust has also adopted a fundamental policy that the
Contract may not be disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the Trust. The
foregoing investment objective and policies are fundamental policies of the
Trust that may not be changed without the approval of a majority of the Trust's
outstanding Securities. A "majority of the Trust's outstanding Securities" means
the lesser of (i) 67% of the Securities represented at a meeting at which more
than 50% of the outstanding Securities are represented, and (ii) more than 50%
of the outstanding Securities.
The value of the Common Stock (or cash or Marketable Securities received in
lieu thereof) that will be received by Holders in respect of the Securities on
the Exchange Date may be more or less than the amount paid for the Securities
offered hereby.
For illustrative purposes only, the following chart shows the number of
shares of Common Stock that a Holder would receive for each Security at various
Average Market Prices. The chart assumes that there would be no adjustments to
the number of shares of Common Stock deliverable under the Contract by reason of
the occurrence of any of the events described under "--The Contract -- Dilution
Adjustments". There can be no assurance that the Average Market Price on the
Exchange Date will be within the range set forth below. Given the Initial Price
of $ per Security and the Appreciation Threshold Price of $ ,
a Holder would receive in connection
10
<PAGE> 13
with the exchange of Securities on the Exchange Date the following number of
shares of Common Stock:
<TABLE>
<CAPTION>
AVERAGE MARKET PRICE NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
-------------------- ----------------
<S> <C>
</TABLE>
TAX TREATMENT OF DISTRIBUTIONS
The following table sets forth information regarding the distributions to
be received on the U.S. Treasuries to be acquired by the Trust with a portion of
the proceeds of the Offering (assuming no exercise of the Underwriters'
over-allotment option), the portion of each year's distributions that will
constitute a return of capital for U.S. federal income tax purposes and the
amount of original issue discount accruing (assuming a yield-to-maturity accrual
election in respect of any short-term U.S. Treasury securities) on such U.S.
Treasuries with respect to a Holder who acquires its Securities at the issue
price from an Underwriter pursuant to the original offering. See "Certain
Federal Income Tax Considerations -- Recognition of Original Issue Discount on
the U.S. Treasury Securities". Holders should not be required to include any
amounts in income upon the Trust's receipt of additional U.S. Treasury
securities as a result of the extension of the Exchange Date and should not be
required to include any original issue discount in income in respect of such
U.S. Treasury Securities. See "Certain Federal Income Tax
Considerations -- Extension of the Exchange Date."
<TABLE>
<CAPTION>
ANNUAL GROSS
ANNUAL GROSS DISTRIBUTIONS FROM ANNUAL RETURN OF ANNUAL INCLUSION OF
DISTRIBUTIONS FROM U.S. TREASURIES CAPITAL PER ORIGINAL ISSUE DISCOUNT
YEAR U.S. TREASURIES PER SECURITY SECURITY IN INCOME PER SECURITY
- ---- ------------------ ------------------ ---------------- -----------------------
<S> <C> <C> <C> <C>
1998.................
1999.................
2000.................
2001.................
</TABLE>
The annual distribution of $ per Security is payable quarterly on
each February , May , August and November , commencing August , 1998.
Quarterly distributions on the Securities will consist solely of the cash
received from the U.S. Treasury securities. The Trust will not be entitled to
any dividends that may be declared on the Common Stock. See "Management and
Administration of the Trust -- Distributions".
ENHANCED YIELD; LESS EQUITY APPRECIATION THAN COMMON STOCK; NO DEPRECIATION
PROTECTION
Holders will receive distributions at a higher annual rate than the current
annual dividends paid on the Common Stock. However, there is no assurance that
the yield on the Securities will be higher than the dividend yield on the Common
Stock over the term of the Trust. In addition, the opportunity for equity
appreciation afforded by an investment in the Securities is less than that
afforded by an investment in the Common Stock because Holders will realize no
equity appreciation if, on the Exchange Date, the Average Market Price of the
Common Stock is at or below the Appreciation Threshold Price (which represents
an appreciation of % of the Initial Price). Moreover, because Holders will
only receive 0. shares of Common Stock per Security (or the Average Market
Price thereof) if the Average Market Price exceeds the Appreciation Threshold
Price, Holders will only be entitled to receive upon exchange % (the
percentage equal to the Initial Price divided by the Appreciation Threshold
Price) of any appreciation of the value of the Common Stock in excess of
11
<PAGE> 14
the Appreciation Threshold Price. Holders of Securities will realize the entire
decline in value if the Average Market Price on the Exchange Date is less than
the price to public per Security shown on the cover page hereof.
THE COMPANY
The Company is a leader in the chain drugstore industry in the United
States. As of March 31, 1998, after giving effect to the merger with Arbor
Drugs, Inc. completed on March 31, 1998, the Company operated approximately
4,100 stores in 25 states in the Northeast, Mid-Atlantic, Midwest and Southeast
regions and in the District of Columbia, making the Company one of the largest
drugstore chains in the nation in terms of store count. The combined Company is
expected to have revenues of approximately $15 billion in 1998. The Company's
stores are well positioned, operating in 49 of the top 100 drugstore markets in
the country. The Company commands the number one or two share position in
approximately 80% of these markets. The Company is also among the industry
leaders in terms of store productivity and operating profit margin.
The shares of Common Stock are traded on the New York Stock Exchange. The
following table sets forth, for the calendar quarters indicated, the reported
high and low sales prices of the shares of Common Stock on the New York Stock
Exchange Composite Tape and the cash dividends per share of Common Stock. As of
March 28, 1998, there were approximately 9,900 record holders of the Common
Stock, including The Depository Trust Company, which holds shares of Common
Stock on behalf of an indeterminate number of beneficial owners.
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW PER SHARE
---- --- ---------
<S> <C> <C> <C>
1996
1st Quarter.......................................... $36 3/8 $27 1/4 $0.11
2nd Quarter.......................................... 44 1/2 35 1/4 0.11
3rd Quarter.......................................... 46 36 5/8 0.11
4th Quarter.......................................... 44 3/4 36 3/8 0.11
1997
1st Quarter.......................................... $48 $39 $0.11
2nd Quarter.......................................... 53 3/4 44 1/4 0.11
3rd Quarter.......................................... 60 50 7/8 0.11
4th Quarter.......................................... 70 54 5/8 0.11
1998
1st Quarter.......................................... 77 13/16 60 7/8 $0.11
2nd Quarter (through May 13, 1998)................... 80 66 1/8 0.11
</TABLE>
On May 13, 1998, the Board of Directors of the Company declared a
two-for-one stock split of the Common Stock distributable on June 15, 1998 to
its stockholders of record on May 25, 1998. The Board of Directors also
increased the dividend rate on the Common Stock after the Stock Split. In that
regard, the Board declared a quarterly cash dividend of $0.0575 per share
payable on August 1, 1998 to stockholders of record on July 23, 1998. The
historical information contained herein has not been adjusted to reflect the
Stock Split.
Holders will not be entitled to rights with respect to the Common Stock
(including, without limitation, voting rights and rights to receive dividends or
other distributions in respect thereof) until receipt of shares of Common Stock
by the Holders as a result of the exchange of the Securities for the Common
Stock on the Exchange Date.
Reference is made to the accompanying prospectus of the Company, dated May
, 1998 (pages A-1 through A-31 hereto) which describes the Company and the
shares of Common Stock deliverable to the Holders upon mandatory exchange of the
Securities on the Exchange Date. The Company is not affiliated with the Trust
and will not receive any of the proceeds from the sale of the
12
<PAGE> 15
Securities. The Company will have no obligations with respect to the Securities.
The Company prospectus relates to an aggregate of 2,650,000 shares of Common
Stock (plus an additional 397,500 shares that may be delivered upon exercise of
the Underwriters' over-allotment option).
THE CONTRACT
GENERAL. The Trust will enter into a Contract with the Seller obligating
the Seller to deliver to the Trust on the Exchange Date a number of shares of
Common Stock equal to the product of the Exchange Rate times the initial number
of shares of Common Stock subject to the Contract. The aggregate initial number
of shares of Common Stock under the Contract will equal the aggregate number of
Securities offered hereby (subject to increase in the event the Underwriters
exercise their over-allotment option). The Contract also provides that the
Seller may deliver to the Trust upon settlement of the Contract, at the Seller's
option, an amount of cash equal to the then Average Market Price of the number
of shares of Common Stock deliverable pursuant to the Contract (the "Cash
Settlement Alternative"). If the Seller elects to deliver cash in lieu of shares
of Common Stock, the Seller would be required to deliver cash in respect of all
shares deliverable pursuant to the Contract. The Trustees will notify the
Holders of (i) any election of the Cash Settlement Alternative, and whether it
is intended to be in connection with a Rollover Offering (which would affect the
computation of the Average Market Price in connection with such settlement, as
described under "General" above), not less than 30 nor more than 90 days prior
to the Exchange Date, and (ii) any acceleration of the Exchange Date in
connection with a Rollover Offering, not later than the Exchange Date. The cash
payment received by the Trust upon such settlement in connection with a Rollover
Offering will be distributed to Holders within five business days of the
Exchange Date. If notice of a cash settlement in connection with a Rollover
Offering is given but the Rollover Offering is not completed, the Contract will
settle by cash payment on May , 2001 (or August , 2001 if the Exchange Date
was previously extended) and the Average Market Price will be computed on the
basis of the average Closing Price for 20 Trading Days.
The Exchange Date may be extended to August , 2001 (subject to subsequent
acceleration at the election of the Seller), provided the Seller delivers to
Trust, on or prior to May , 2001, additional U.S. Treasury securities with
face amounts and maturities corresponding to the quarterly distribution payable
with respect to the Securities on August , 2001. The Seller will be entitled,
under the Contract, to repurchase such additional U.S. Treasury securities from
the Trust on or prior to the Exchange Date, at a price equal to the aggregate
unpaid distributions on the Securities accruing to the Exchange Date.
The Contract also provides that if the Seller delivers Securities to the
Trust on or prior to the Exchange Date, its obligation under the Contract will
be proportionately reduced. Such delivery of Securities in partial or complete
satisfaction of the Seller's obligations will not affect the amount of Common
Stock or cash receivable by Holders of Securities on the Exchange Date.
The purchase price of the Contract was arrived at by arm's-length
negotiation between the Trust and the Seller taking into consideration factors
including the price, expected dividend level and volatility of the Common Stock,
current interest rates, the term of the Contract, current market volatility
generally, the collateral security pledged by the Seller, the value of other
similar instruments and the costs and anticipated proceeds of the offering of
the Securities. All matters relating to the administration of the Contract will
be the responsibility of either the Administrator or the Custodian.
DILUTION ADJUSTMENTS. The Exchange Rate is subject to adjustment if the
Company (i) pays a stock dividend or makes a distribution with respect to the
Common Stock in shares of such stock, (ii) subdivides or splits its outstanding
shares of Common Stock, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issues by reclassification of its
shares of Common Stock any shares of other common stock of the Company. In any
such event, the Exchange Rate shall be adjusted as follows: for each share of
Common Stock that would have been deliverable upon exchange prior to the
adjustment, the Holder will receive the number of shares of
13
<PAGE> 16
Common Stock (or, in the case of a reclassification referred to in clause (iv)
above, the number of shares of other common stock of the Company issued pursuant
thereto), or fraction thereof, that a shareholder who held one share of Common
Stock immediately prior to such event would be entitled solely by reason of such
event to hold immediately after such event.
In addition, if the Company issues rights or warrants to all holders of
Common Stock entitling them to subscribe for or purchase shares of Common Stock
at a price per share less than the Then-Current Market Price of the Common Stock
(as defined below) (other than rights to purchase Common Stock pursuant to a
plan for the reinvestment of dividends or interest), then the Exchange Rate
shall be adjusted pursuant to the following formula:
OS + AS
A = ER x ---------------
OS + PS
where
ER = the Exchange Rate prior to the adjustment;
OS = the number of shares of Common Stock outstanding immediately prior to
the time (determined as described below) the adjustment is calculated
by reason of the issuance of such rights or warrants;
AS -- the number of additional shares offered for subscription or purchase
pursuant to such rights or warrants; and
PS = the number of additional shares that the aggregate offering price of
the shares so offered for subscription or purchase would purchase at
the Then-Current Market Price.
To the extent that, after expiration of such rights or warrants, the shares
offered thereby shall not have been delivered, the Exchange Rate shall be
further adjusted to equal the Exchange Rate that would have been in effect had
the foregoing adjustment been made upon the basis of delivery of only the number
of shares of Common Stock actually delivered.
The "Then-Current Market Price" of the Common Stock means the average
Closing Price per share of Common Stock for a Calculation Period of five Trading
Days immediately prior to the time such adjustment is effected (or, in the case
of an adjustment effected at the opening of business on the business day
following a record date, as described below, immediately prior to the earlier of
the time such adjustment is effected and the related "ex-date" on which the
shares of Common Stock first trade regular way on their principal market without
the right to receive the relevant dividend, distribution or issuance); provided
that if no Closing Price for the Common Stock is determined for one or more (but
not all) of such Trading Days, such Trading Day shall be disregarded in the
calculation of the Then-Current Market Price (but no additional Trading Days
shall be added to the Calculation Period). If no Closing Price for the Common
Stock is determined for any of such Trading Days, the most recently available
Closing Price for the Common Stock prior to such five Trading Days shall be the
Then-Current Market Price. "Calculation Period" means any period of Trading Days
for which an average security price must be determined pursuant to the Contract.
In addition, if the Company pays a dividend or makes a distribution to all
holders of Common Stock, in either case, of evidences of its indebtedness or
other non-cash assets (excluding any stock dividends or distributions in shares
of Common Stock) or issues to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights or warrants
referred to in the second paragraph of this subsection), then the Exchange Rate
shall be adjusted pursuant to the following formula:
T
A = ER x ------
T - V
14
<PAGE> 17
where
ER = the Exchange Rate prior to adjustment;
T = the Then-Current Market Price per share of Common Stock; and
V = the fair market value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator) as of the time the adjustment is calculated of the
portion of such evidences of indebtedness, non-cash assets or rights or
warrants payable in respect of one share of Common Stock.
In addition, if the Company distributes cash (other than an Excluded
Distribution), by dividend or otherwise, to all holders of Common Stock or makes
an Excess Purchase Payment, then the Exchange Rate shall be adjusted pursuant to
the following formula:
T
A = ER x ------
T - D
where
ER = the Exchange Rate prior to adjustment;
T = the Then-Current Market Price on the record date in respect of such
distribution; and
D = the amount of such distribution applicable to one share of Common Stock
that would not be a Permitted Dividend (or in the case of an Excess
Purchase Payment, the aggregate amount of such Excess Purchase Payment
divided by the number of outstanding shares of Common Stock on such
record date).
For purposes of these adjustments,
(a) the term "Excluded Distribution" means any Permitted Dividend, any cash
distributed in consideration of fractional shares of Common Stock and
any cash distributed in a Reorganization Event;
(b) the term "Permitted Dividend" means any quarterly cash dividend in
respect of the Common Stock, other than a quarterly cash dividend that
exceeds the immediately preceding quarterly cash dividend, and then
only to the extent that the per share amount of such dividend results
in an annualized dividend yield on the Common Stock in excess of %;
and
(c) the term "Excess Purchase Payment" means the excess, if any, of (i) the
cash and the value (as determined by a nationally recognized
independent investment banking firm retained for this purpose by the
Administrator, whose determination shall be conclusive) of all other
consideration paid by the Company with respect to one share of Common
Stock acquired in a tender offer or exchange offer by the Company over
(ii) the Then-Current Market Price per share of Common Stock.
If any adjustment in the Exchange Rate is required to be calculated
pursuant to the formulas described above, corresponding adjustments to the
Initial Price and the Appreciation Threshold Price shall be calculated.
Dilution adjustments shall be effected: (i) in the case of any dividend,
distribution or issuance described above, at the opening of business on the
business day following the record date for determination of holders of Common
Stock entitled to receive such dividend, distribution or issuance or, if the
announcement of any such dividend, distribution or issuance is after such record
date, at the time such dividend, distribution or issuance shall be announced by
the Company; (ii) in the case of any subdivision, split, combination or
reclassification described above, on the effective date of such transaction;
(iii) in the case of any Excess Purchase Payment for which the Company shall
announce, at or prior to the time it commences the relevant share repurchase,
the repurchase price
15
<PAGE> 18
for such shares to be repurchased, on the date of such announcement; and (iv) in
the case of any other Excess Purchase Payment, on the date that the holders of
Common Stock become entitled to payment with respect thereto. There will be no
adjustment under the Contract in respect of any dividends, distributions,
issuances or repurchases that may be declared or announced after the Exchange
Date. If any announcement or declaration of a record date in respect of a
dividend, distribution, issuance or repurchase shall subsequently be canceled by
the Company, or such dividend, distribution, issuance or repurchase shall fail
to receive requisite approvals or shall fail to occur for any other reason, then
the Exchange Rate shall be further adjusted to equal the Exchange Rate that
would have been in effect had the adjustment for such dividend, distribution,
issuance or repurchase not been made. If after an announcement of a share
repurchase, the Company reduces the repurchase price or repurchases fewer shares
than announced, upon completion of such share repurchase, the Exchange Rate
shall be further adjusted to equal the Exchange Rate that would have been in
effect had the adjustment for such repurchase been based on the actual price and
amount repurchased. All adjustments described herein shall be rounded upward or
downward to the nearest 1/10,000 (or if there is not a nearest 1/10,000, to the
next lower 1/10,000). No adjustment in the Exchange Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent therein; provided, however, that any adjustments which by reason of the
foregoing are not required to be made shall be carried forward and taken into
account in any subsequent adjustment.
In the event of a Reorganization Event, the Exchange Rate will be adjusted
such that, on the Exchange Date, each Holder will receive for each Security cash
in an amount equal to:
(i) if the Transaction Value (as defined below) is less than the
Appreciation Threshold Price but equal to or greater than the Initial
Price, the Initial Price,
(ii) if the Transaction Value is greater than or equal to the
Appreciation Threshold Price, 0. multiplied by the Transaction Value, and
(iii) if the Transaction Value is less than the Initial Price, the
Transaction Value;
provided, however, that if the consideration received by holders of Common Stock
in such Reorganization Event does not include Marketable Securities, then (a)
the Seller's delivery obligations under the Contract will be accelerated, and
the Transaction Value will be deliverable promptly upon consummation of the
Reorganization Event; (b) the Custodian will liquidate the U.S. Treasury
securities acquired by the Trust at closing and then held by the Trust; and (c)
such Transaction Value and the proceeds of such liquidation will be distributed
to the Holders.
Notwithstanding the foregoing, to the extent that any Marketable Securities
(as defined below) are received by holders of Common Stock in such
Reorganization Event, then in lieu of delivering cash as provided above, the
Seller may at its option deliver a proportional amount of such Marketable
Securities on the Exchange Date. If the Seller elects to deliver Marketable
Securities on the Exchange Date, Holders will be responsible for the payment of
any and all brokerage and other transaction costs upon the sale of such
securities.
"Reorganization Event" means (A) any consolidation or merger of the
Company, or any surviving entity or subsequent surviving entity of the Company
(a "Company Successor"), with or into another entity (other than a merger or
consolidation in which the Company is the continuing corporation and in which
the Common Stock outstanding immediately prior to the merger or consolidation is
not exchanged for cash, securities or other property of the Company or another
corporation), (B) any sale, transfer, lease or conveyance to another corporation
of the property of the Company or any Company Successor as an entirety or
substantially as an entirety, (C) any statutory exchange of securities of the
Company or any Company Successor with another corporation (other than in
connection with a merger or acquisition) or (D) any liquidation, dissolution or
winding up of the Company or any Company Successor.
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<PAGE> 19
"Transaction Value" means (i) for any cash received in any such
Reorganization Event, the amount of cash received per share of Common Stock,
(ii) for any property other than cash or Marketable Securities received in any
such Reorganization Event, an amount equal to the market value on the date the
Reorganization Event is consummated of such property received per share of
Common Stock as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator and (iii) for any
Marketable Securities received in any such Reorganization Event, an amount equal
to the average Closing Price per share of such securities on the 20 Trading Days
immediately prior to the Exchange Date multiplied by the number of such
securities received for each share of Common Stock; provided that if no Closing
Price for such Marketable Securities is determined for one or more (but not all)
of such Trading Days, such Trading Days shall be disregarded in the calculation
of such average Closing Price (but no additional Trading Days shall be added to
the Calculation Period). If no Closing Price for the Marketable Securities is
determined for all such Trading Days, the calculation in the preceding clause
(iii) shall be based on the most recently available Closing Price for the
Marketable Securities prior to such 20 Trading Days. The number of shares of
Marketable Securities included in the calculation of Transaction Value for
purposes of the preceding clause (iii) shall be subject to adjustment if a
dilution event of the type described above shall occur with respect to the
issuer of the Marketable Securities between the time of the Reorganization Event
and the Exchange Date.
For purposes of determining Transaction Value, the term "Trading Day" and
"Closing Price" will have the same meaning, as applied to the Marketable
Securities, as these terms have as applied to the Common Stock for purposes of
determining the Average Market Price.
"Marketable Securities" means any common equity securities (whether voting
or non-voting) listed on a U.S. national securities exchange or reported by The
NASDAQ National Market.
No dilution adjustments will be made for events, other than those described
above, such as offerings of Common Stock (other than through the issuance of
rights or warrants described above) for cash or in connection with acquisitions.
COLLATERAL ARRANGEMENTS; ACCELERATION. The Seller's obligations under the
Contract initially will be secured by a security interest in the maximum number
of shares of Common Stock subject to the Contract (subject to adjustment in
accordance with the dilution adjustment provisions of the Contract, described
above), pursuant to a Collateral Agreement between the Seller and The Chase
Manahattan Bank, as collateral agent (the "Collateral Agent"). Unless the Seller
is in default in its obligations under the Collateral Agreement, the Seller will
be permitted to substitute for the pledged shares of Common Stock collateral
consisting of short-term, direct obligations of the U.S. Government. Any U.S.
Government obligations pledged as substitute collateral will be required to have
an aggregate market value at the time of substitution and at daily
mark-to-market valuations thereafter of not less than 150% (or, from and after
any Insufficiency Determination that shall not be cured by the close of business
on the next business day thereafter, as described below, 200%) of the product of
the market price of the Common Stock at the time of each valuation times the
number of shares of Common Stock for which such obligations are being
substituted. The Collateral Agreement will provide that, in the event of a
Reorganization Event, the Seller will pledge as alternative collateral any
Marketable Securities received by it in respect of the maximum number of shares
of Common Stock subject to the Contract at the time of the Reorganization Event,
plus cash in an amount equal to 100% of the Seller's Cash Delivery Obligations
(or U.S. Government obligations having an aggregate market value when pledged
and at daily mark-to-market valuations thereafter of not less than 105%
thereof). The Collateral Agent will be required, under the Collateral Agreement,
to invest any such cash in U.S. Treasury securities maturing on or before May
, 2001. The Seller's "Cash Delivery Obligations" shall be the Transaction
Value of any consideration other than Marketable Securities received by the
Seller in respect of the maximum number of shares subject to the Contract at the
time of the Reorganization Event. The number of shares of Marketable Securities
required to be pledged shall be subject to adjustment if any event requiring a
dilution adjustment under the Contract shall occur. The Seller will be permitted
to substitute
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<PAGE> 20
U.S. Government obligations for Marketable Securities pledged at the time of or
after any Reorganization Event. Any U.S. Government obligations so substituted
will be required to have an aggregate market value at the time of substitution
and at daily mark-to-market valuations thereafter of not less than 150% (or,
from and after any Insufficiency Determination that shall not be cured by the
close of business on the next business day thereafter, as described below, 200%)
of the product of the market price per share of Marketable Securities at the
time of each valuation times the number of shares of Marketable Securities for
which such obligations are being substituted. The Collateral Agent will promptly
pay over to the Seller any dividends, interest, principal or other payments
received by the Collateral Agent in respect of any collateral pledged by the
Seller, including any substitute collateral, unless the Seller is in default of
its obligations under the Collateral Agreement, or unless the payment of such
amount to the Seller would cause the collateral to become insufficient under the
Collateral Agreement. The Seller shall have the right to vote any pledged shares
of Marketable Securities for so long as such shares are owned by it and pledged
under its Collateral Agreement, including after an event of default under the
Contract or Collateral Agreement.
If the Collateral Agent shall determine (an "Insufficiency Determination")
that U.S. Government obligations pledged by the Seller as substitute collateral
shall fail to meet the foregoing requirements at any valuation, or that the
Seller has failed to pledge additional collateral required as a result of a
dilution adjustment increasing the maximum number of shares of Common Stock or
shares of Marketable Securities subject to the Contract, and such failure shall
not be cured by the close of business on the next business day after such
determination, then, unless a Collateral Event of Default (as defined below)
under the Collateral Agreement shall have occurred and be continuing, the
Collateral Agent shall commence (i) sales of the collateral consisting of U.S.
Government obligations and (ii) purchases, using the proceeds of such sales, of
shares of Common Stock or shares of Marketable Securities, in an amount
sufficient to cause the collateral to meet the requirements under such
Collateral Agreement. The Collateral Agent shall discontinue such sales and
purchases if at any time a Collateral Event of Default under such Collateral
Agreement shall have occurred and be continuing. A "Collateral Event of Default"
under the Collateral Agreement shall mean, at any time, (A) if no U.S.
Government obligations shall be pledged as substitute collateral at such time,
failure of the collateral to consist of at least the maximum number of shares of
Common Stock subject to the Contract at such time (or, if a Reorganization Event
shall have occurred at or prior to such time, failure of the collateral to
include the maximum number of shares of any Marketable Securities required to be
pledged as described above); (B) if any U.S. Government obligations shall be
pledged as substitute collateral for shares of Common Stock (or shares of
Marketable Securities) at such time, failure of such U.S. Government obligations
to have a market value at such time of at least 105% of the market price per
share of Common Stock (or the then-Average Market Price per share of Marketable
Securities, as the case may be) times the difference between (x) the maximum
number of shares of Common Stock (or shares of Marketable Securities) subject to
the Contract at such time and (y) the number of shares of Common Stock (or
shares of Marketable Securities) pledged as collateral at such time; and (C) at
any time after a Reorganization Event in which consideration other than
Marketable Securities shall have been delivered, failure of any U.S. Government
obligations pledged in respect of Cash Delivery Obligations to have a market
value at such time of at least 105% of such Cash Delivery Obligations, if such
failure shall not be cured within one business day after notice thereof is
delivered to the Seller.
The occurrence of a Collateral Event of Default under the Collateral
Agreement, or the bankruptcy or insolvency of the Seller, will cause an
automatic acceleration of the Seller's obligations under the Contract. In any
such event, the Seller will become obligated to deliver the initial number of
shares of Common Stock (or, after a Reorganization Event, the Marketable
Securities or cash or a combination thereof deliverable in respect thereof)
subject to the Contract, or any U.S. Government obligations then pledged in
respect thereof.
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<PAGE> 21
Upon any acceleration under the Collateral Agreement, (i) the Collateral
Agent will distribute to the Trust, for distribution pro rata to the Holders,
the shares of Common Stock then pledged by the Defaulting Seller, or cash
generated from the liquidation of U.S. Government obligations then pledged by
the Defaulting Seller, or a combination thereof (or, after a Reorganization
Event, the Marketable Securities then pledged by the Defaulting Seller, cash
generated from the liquidation of U.S. Government obligations then pledged by
the Defaulting Seller, or a combination thereof) and (ii) the Custodian will
liquidate a proportionate amount of the U.S. Treasury securities acquired by the
Trust at closing and then held by the Trust and distribute the proceeds pro rata
to the Holders. Following any distributions upon acceleration and liquidation in
accordance with the foregoing sentence, the number of shares of Common Stock or
Marketable Securities, as applicable, deliverable to Holders on the Exchange
Date will be proportionately reduced. In addition, in the event that by the
Exchange Date any substitute collateral has not been replaced by Common Stock
(or, after a Reorganization Event, cash or Marketable Securities) sufficient to
meet the obligations under the Contract, the Collateral Agent will distribute to
the Trust for distribution pro rata to the Holders the market value of the
Common Stock required to be delivered thereunder, in the form of any shares of
Common Stock then pledged by the Seller plus cash generated from the liquidation
of U.S. Government obligations then pledged by the Seller (or, after a
Reorganization Event, the market value of the alternative consideration required
to be delivered thereunder, in the form of any Marketable Securities then
pledged, plus any cash then pledged, plus cash generated from the liquidation of
U.S. Government obligations then pledged). See "-- Trust Termination".
DESCRIPTION OF THE SELLER. The Seller is the Eugene Applebaum Revocable
Living Trust. Reference is made to the caption "Selling Stockholder" in the
Company's prospectus for information about the Seller.
THE U.S. TREASURY SECURITIES
The Trust will purchase and hold a series of zero-coupon ("stripped") U.S.
Treasury securities with face amounts and maturities corresponding to the
distributions payable with respect to the Securities and the payment dates
thereof. Up to 30% of the Trust's total assets may be invested in these U.S.
Treasury Securities. Additional U.S. Treasury securities may be transferred to
the Trust in connection with an extension of the Exchange Date to August ,
2001. In the event that the Contract is accelerated, then a proportionate amount
of such U.S. Treasury securities then held in the Trust shall be liquidated by
the Administrator and the proceeds thereof distributed pro rata to the Holders,
together with the amounts distributed upon acceleration. See "-- Collateral
Arrangements; Acceleration" and "-- Trust Termination".
TEMPORARY INVESTMENTS
For cash management purposes, the Trust may invest the proceeds of the U.S.
Treasury securities and any other cash held by the Trust in short-term
obligations of the U.S. Government maturing no later than the business day
preceding the next following distribution date. Not more than 5% of the Trust's
total assets will be invested in such short-term obligations or held in cash at
any one time.
INVESTMENT RESTRICTIONS
As a matter of fundamental policy, the Trust may not purchase any
securities or instruments other than the U.S. Treasury securities, the Contract
and the Common Stock or other assets received pursuant to the Contract and, for
cash management purposes, short-term obligations of the U.S. Government; issue
any securities or instruments except for the Securities; make short sales or
purchase securities on margin; write put or call options; borrow money;
underwrite securities; purchase or sell real estate, commodities or commodities
contracts including futures contracts; or make loans (other than the purchase of
stripped U.S. Treasury securities as described in this Prospectus). The Trust
also has adopted a fundamental policy that the Contract may not be
19
<PAGE> 22
disposed of during the term of the Trust and that the U.S. Treasury securities
held by the Trust may not be disposed of prior to the earlier of their
respective maturities and the termination of the Trust.
Because of the foregoing limitations, the Trust's investments will be
concentrated in the chain drugstore industry, which is the industry in which the
Company operates. The Trust is not permitted to purchase restricted securities.
TRUST TERMINATION
The Trust will terminate automatically on or shortly after the Exchange
Date. Alternatively, in the event that the Contract are accelerated, then any
U.S. Treasury securities then held in the Trust shall be liquidated by the
Administrator and the proceeds distributed pro rata to the Holders, together
with the amounts distributed upon acceleration, and the Trust shall be
terminated. See "-- Collateral Arrangements; Acceleration" and "-- The U.S.
Treasury Securities".
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<PAGE> 23
RISK FACTORS
INTERNAL MANAGEMENT; NO PORTFOLIO MANAGEMENT
The Trust will be internally managed by its Trustees and will not have any
separate investment adviser. It is a fundamental policy of the Trust that the
Contract may not be disposed of during the term of the Trust and that the U.S.
Treasury securities held by the Trust may not be disposed of prior to the
earlier of their respective maturities and the termination of the Trust. As a
result, the Trust will continue to hold the Contract despite significant
declines in the market price of the Common Stock or adverse changes in the
financial condition of the Company (or, after a Reorganization Event, comparable
developments affecting any Marketable Securities or the issuer thereof). The
Trust will not be managed like a typical closed-end investment company.
LIMITED APPRECIATION POTENTIAL; COMMON STOCK DEPRECIATION RISK
The Trust anticipates that on the Exchange Date, it will receive the Common
Stock deliverable pursuant to the Contract, which it will then distribute to
Holders. Although the yield on the Securities is higher than the current
dividend yield on the Common Stock, there is no assurance that the yield on the
Securities will be higher than the dividend yield on the Common Stock over the
term of the Trust. In addition, because the Contract call for the Seller to
deliver less than the full number of shares of Common Stock subject to the
Contract where the Average Market Price exceeds the Initial Price (and therefore
less than one full share of Common Stock for each outstanding Security), the
Securities have more limited appreciation potential than the Common Stock.
Therefore, the Securities may trade below the value of the Common Stock if the
Common Stock appreciates in value. The value of the Common Stock to be received
by Holders on the Exchange Date (and any cash received in lieu thereof) may be
less than the amount paid for the Securities. Holders of Securities will realize
the entire decline in value if the Average Market Price is less than the price
to public per Security shown on the cover page hereof.
DILUTION ADJUSTMENTS; SHAREHOLDER RIGHTS
The number of shares of Common Stock that Holders are entitled to receive
at the termination of the Trust is subject to adjustment for certain events
arising from stock splits and combinations, stock dividends and certain other
actions of the Company that modify its capital structure. See "Investment
Objective and Policies -- The Contract -- Dilution Adjustments". The number of
shares to be received by Holders may not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions, that may
adversely affect the price of the Common Stock and, because of the relationship
of the amount to be received pursuant to the Contract to the price of the Common
Stock, such other events may adversely affect the trading price of the
Securities. There can be no assurance that the Company will not take any of the
foregoing actions, or that it will not make offerings of, or that major
shareholders will not sell any, Common Stock in the future, or as to the amount
of any such offerings or sales. In addition, until the receipt of the Common
Stock by Holders as a result of the exchange of the Securities for the Common
Stock, Holders will not be entitled to any rights with respect to the Common
Stock (including without limitation voting rights and the rights to receive any
dividends or other distributions in respect thereof).
TRADING VALUE; LISTING
The Trust is a newly organized closed-end investment company with no
previous operating history and the Securities are innovative securities. It is
not possible to predict how the Securities will trade in the secondary market.
The trading price of the Securities may vary considerably prior to the Exchange
Date due to, among other things, fluctuations in the price of the Common Stock
(which may occur due to changes in the Company's financial condition, results of
operations or prospects, or because of complex and interrelated political,
economic, financial and other factors
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<PAGE> 24
that can affect the capital markets generally, the stock exchanges or quotation
systems on which the Common Stock is traded and the market segment of which the
Company is a part) and fluctuations in interest rates and other factors that are
difficult to predict and beyond the Trust's control. The Trust believes,
however, that because of the yield on the Securities and the formula for
determining the number of shares of Common Stock to be delivered on the Exchange
Date, the Securities will tend to trade at a premium to the market value of the
Common Stock to the extent the Common Stock price falls and at a discount to the
market value of the Common Stock to the extent the Common Stock price rises.
There can, however, be no assurance that the Securities will trade at a premium
to the market value of the Common Stock.
Shares of closed-end investment companies frequently trade at a discount
from net asset value. This characteristic of investments in a closed-end
investment company is a risk separate and distinct from the risk that the
Trust's net asset value will decrease. The Trust cannot predict whether its
shares will trade at, below or above net asset value. The risk of purchasing
investments in a closed-end investment company that might trade at a discount
may be greater for investors who wish to sell their investments soon after
completion of an initial public offering because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance.
Goldman Sachs currently intends, but is not obligated, to make a market in
the Securities. There can be no assurance that a secondary market will develop
or, if a secondary market does develop, that it will provide the Holders with
liquidity of investment or that it will continue for the life of the Securities.
Goldman Sachs may cease to make a market in the Securities at any time without
notice. Application will be made to list the Securities on the NYSE. Assuming
the acceptance of such application, there can be no assurance that the
Securities will not later be delisted or that trading in the Securities on the
NYSE will not be suspended. In the event of a delisting or suspension of trading
on such exchange, the Trust will apply for listing of the Securities on another
national securities exchange or for quotation on another trading market. If the
Securities are not listed or traded on any securities exchange or trading
market, or if trading of the Securities is suspended, pricing information for
the Securities may be more difficult to obtain, and the price and liquidity of
the Securities may be adversely affected.
NON-DIVERSIFIED STATUS
The Trust is considered non-diversified under the Investment Company Act,
which means that the Trust is not limited in the proportion of its assets that
may be invested in the obligations of a single issuer. Since the only assets
held or received by the Trust will be U.S. Treasury securities and the Contract
or other assets consistent with the terms of the Contract, the Trust will be
subject to greater risk than would be the case for an investment company with
diversified investments.
DESCRIPTION OF THE SECURITIES
Each Security represents an equal proportional interest in the Trust, and a
total of Securities will be issued (assuming no exercise of the
Underwriters' overallotment option). Upon liquidation of the Trust, Holders are
entitled to share pro rata in the net assets of the Trust available for
distribution. The Securities have no preemptive, redemption or conversion
rights. Securities are fully paid and nonassessable by the Trust. The only
securities that the Trust is authorized to issue are the Securities offered
hereby and those sold to the initial Holder referred to below. See
"Underwriting".
Holders are entitled to a full vote for each Security held on all matters
to be voted on by Holders and are not able to cumulate their votes in the
election of Trustees. The Trustees of the Trust have been selected initially by
Goldman Sachs, as the initial Holder of Securities of the Trust. The Trust
intends to hold annual meetings as required by the rules of the NYSE. The
Trustees may call special meetings of Holders for action by Holder vote as may
be required by either the Investment Company
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<PAGE> 25
Act or the Amended and Restated Trust Agreement. The Holders have the right,
upon the declaration in writing or vote of more than two-thirds of the
outstanding Securities, to remove a Trustee. The Trustees will call a meeting of
Holders to vote on the removal of a Trustee upon the written request of the
Holders of record of 10% of the Securities or to vote on other matters upon the
written request of the Holders of record of 51% of the Securities (unless
substantially the same matter was voted on during the preceding 12 months). The
Trustees shall establish, and notify the Holders in writing of, the record date
for each such meeting which shall be not less than 10 nor more than 50 days
before the meeting date. Holders at the close of business on the record date
will be entitled to vote at the meeting. The Trust will also assist in
communications with other Holders as required by the Investment Company Act.
In calculating the net asset value of the Trust as required by the
Investment Company Act, the Amended and Restated Trust Agreement provides that
(i) the Treasury Securities will be valued at the mean between the last current
bid and asked prices or, if quotations are not available, as determined in good
faith by the Trustees, (ii) short-term investments having a maturity of 60 days
or less will be valued at cost with accrued interest or discount earned included
in interest receivable and (iii) the Contract will be valued on the basis of the
bid price received by the Trust in respect of the Contract, or any portion
thereof covering not less than 1,000 shares, from an independent broker-dealer
firm unaffiliated with the Trust to be named by the Trustees who is in the
business of making bids on financial instruments similar to the Contract and
with terms comparable thereto, or if such a bid quotation is not available, as
determined in good faith by the Trustee.
BOOK-ENTRY-ONLY ISSUANCE
The Depository Trust Company ("DTC") will act as securities depository for
the Securities. The information in this section concerning DTC and DTC's
book-entry system is based upon information obtained from DTC. The Securities
offered hereby will be issued only as fully-registered securities registered in
the name of Cede & Co. (as nominee for DTC). One or more fully-registered global
Security certificates will be issued, representing in the aggregate the total
number of Securities, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). Access to
the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants").
Purchases of Securities within the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of a Security
("Beneficial Owner") is in turn to be recorded on the Direct or Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchases, but Beneficial Owners are expected to receive
written confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Securities. Transfers of ownership
interests in Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Securities,
except upon a resignation of DTC.
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<PAGE> 26
DTC has no knowledge of the actual Beneficial Owners of the Securities;
DTC's records reflect only the identity of the Direct Participants to whose
accounts such Securities are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Payments on the Securities will be made to DTC. DTC's practice is to credit
Direct Participants' accounts on the relevant payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices and will be the responsibility of such Participant and not
of DTC or the Trust, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of dividends to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a global
Security will not be entitled to receive physical delivery of Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Securities.
DTC may discontinue providing its services as securities depository with
respect to the Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depository is
not obtained, certificates representing the Securities will be printed and
delivered.
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<PAGE> 27
MANAGEMENT AND ADMINISTRATION OF THE TRUST
TRUSTEES
The Trust will be internally managed by three Trustees, none of which is an
"interested person" of the Trust as defined in the Investment Company Act. Under
the provisions of the Code applicable to grantor trusts, the Trustees will not
have the power to vary the investments held by the Trust. It is a fundamental
policy of the Trust that the Contract may not be disposed of during the term of
the Trust and that the U.S. Treasury Securities held by the Trust may not be
disposed of prior to the earlier of their respective maturities and termination
of the Trust.
The names of the persons who have been elected by Goldman Sachs, the
initial Holder of the Trust, and who will serve as the Trustees are set forth
below. The positions and the principal occupations of the individual Trustees
during the past five years are also set forth below.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
--------------------- ----- ----------------------
<S> <C> <C>
Donald J. Puglisi, 50.......................... Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 51...................... Trustee Professor of Economics
Department of Economics University of Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 57........................... Trustee Professor of Economics
Center for Education & Entrepreneurship University of Delaware
University of Delaware
Newark, DE 19716
</TABLE>
Each Trustee who is not a director, officer or employee of any Underwriter
or the Administrator, or of any affiliate thereof, will be paid by the Seller,
on behalf of the Trust, in respect of its annual fee and anticipated
out-of-pocket expenses, a one-time, up-front fee of $ . The Trust's
Managing Trustee will also receive an additional up-front fee of $ for
serving in that capacity. The Trustees will not receive, either directly or
indirectly, any other compensation, including any pension or retirement
benefits, from the Trust. None of the Trustees receives any compensation for
serving as a trustee or director of any other affiliated investment company.
ADMINISTRATOR
The day-to-day affairs of the Trust will be managed by The Chase Manhattan
Bank as Trust Administrator pursuant to an Administration Agreement. Under the
Administration Agreement, the Trustees have delegated most of their operational
duties to the Administrator, including without limitation, the duties to: (i)
receive invoices for expenses incurred by the Trust; (ii) with the approval of
the Trustees, engage legal and other professional advisors (other than the
independent public accountants for the Trust); (iii) instruct the Paying Agent
to pay distributions on Securities as described herein; (iv) prepare and mail,
file or publish all notices, proxies, reports, tax returns and other
communications and documents, and keep all books and records, for the Trust; (v)
at the direction of the Trustees, institute and prosecute legal and other
appropriate proceedings to enforce the rights and remedies of the Trust; and
(vi) make all necessary arrangements with respect to meetings of Trustees and
any meetings of Holders. The Administrator, however, will not select the
independent public accountants for the Trust or sell or otherwise dispose of the
Trust assets (except in connection with an acceleration of the Contract or the
settlement of the Contract and upon termination of the Trust), subject to the
Seller's right to repurchase U.S. Treasury securities transferred to the Trust
in connection with an extension of the Exchange Date.
25
<PAGE> 28
The Administration Agreement may be terminated by either the Trust or the
Administrator upon 60 days' prior written notice, except that no termination
shall become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
The address of the Administrator is 450 West 33rd Street, New York, New
York 10001.
CUSTODIAN
The Trust's custodian (the "Custodian") is The Chase Manahattan Bank
pursuant to a custodian agreement (the "Custodian Agreement"). In the event of
any termination of the Custodian Agreement by the Trust or the resignation of
the Custodian, the Trust must engage a new Custodian to carry out the duties of
the Custodian as set forth in the Custodian Agreement. Pursuant to the Custodian
Agreement, all net cash received by the Trust will be invested by the Custodian
in short-term U.S. Treasury securities maturing on or shortly before the next
quarterly distribution date. The Custodian will also act as collateral agent
under the Collateral Agreements and will hold a perfected security interest in
the Common Stock and U.S. Government obligations or other assets consistent with
the terms of the Contract.
PAYING AGENT
The transfer agent, registrar and paying agent (the "Paying Agent") for the
Securities is ChaseMellon Shareholder Services, L.L.C. pursuant to a paying
agent agreement (the "Paying Agent Agreement"). In the event of any termination
of the Paying Agent Agreement by the Trust or the resignation of the Paying
Agent, the Trust will use its best efforts to engage a new Paying Agent to carry
out the duties of the Paying Agent.
Except for their roles as Administrator, Custodian, Paying Agent, registrar
and transfer agent for the Trust, The Chase Manahattan Bank and ChaseMellon
Shareholder Services, L.L.C., have no other affiliation with, and are not
engaged in any other transactions with, the Trust.
INDEMNIFICATION
The Trust will indemnify each Trustee, the Paying Agent, the Administrator
and the Custodian, with respect to any claim, liability, loss or expense
(including the costs and expenses of the defense against any claim or liability)
that it may incur in acting as Trustee, Paying Agent, Administrator or
Custodian, as the case may be, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of their respective duties or
where applicable law prohibits such indemnification. Goldman Sachs has agreed to
reimburse the Trust for any amounts it may be required to pay as indemnification
to any Trustee, the Administrator, the Custodian or the Paying Agent. Goldman
Sachs will in turn be reimbursed by the Seller for all such reimbursements paid
by it.
DISTRIBUTIONS
The Trust intends to distribute to Holders on a quarterly basis an amount
equal to $ . per Security (which amount equals the pro rata portion of
the fixed quarterly cash distributions from the proceeds of the maturing U.S.
Treasury securities held by the Trust). The first distribution, reflecting the
Trust's operations from the date of this offering, will be made on August ,
1998 to Holders of record as of August , 1998. Thereafter, distributions
will be made on February , May , August and November , of each
year to Holders of record as of each February , May , August and
November , respectively. A portion of each such distribution should be
treated as a tax-free return of the Holder's investment. See "Investment
Objective and Policies -- Tax Treatment of Distributions" and "Certain Federal
Income Tax Considerations -- Recognition of Interest on the U.S. Treasury
Securities".
Upon termination of the Trust, as described under the caption "Investment
Objective and Policies -- Trust Termination", each Holder will receive any
remaining net assets of the Trust,
26
<PAGE> 29
subject to the Seller's right to repurchase U.S. Treasury securities transferred
to the Trust in connection with an extension of the Exchange Date.
The Trust does not permit the reinvestment of distributions.
ESTIMATED EXPENSES
At the closing of this offering the Seller will pay to each of the
Administrator, the Custodian and the Paying Agent, and to each Trustee, a
one-time, up-front amount in respect of its fee and, in the case of the
Administrator, anticipated expenses of the Trust over the term of the Trust. The
anticipated Trust expenses to be borne by the Administrator include, among other
things, expenses for legal and independent accountants' services, costs of
printing proxies, Securities certificates and Holder reports, expenses of the
Trustees, fidelity bond coverage, stock exchange listing fees and expenses of
qualifying the Securities for sale in the various states. Organization costs of
the Trust in the amount of $ and estimated costs of the Trust in
connection with the initial registration and public offering of the Securities
in the amount of $ will be paid by the Seller.
The amount payable to the Administrator in respect of ongoing expenses of
the Trust was determined based on estimates made in good faith on the basis of
information currently available to the Trust, including estimates furnished by
the Trust's agents. There cannot, however, be any assurance that actual
operating expenses of the Trust will not be substantially more than this amount.
Any excess expenses will be paid by the Seller or, in the event of failure by
the Seller to pay such amounts, the Trust, which will reduce the amount
available to distribute to Holders.
27
<PAGE> 30
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of the principal United States federal income tax
consequences of ownership of Securities represents the opinion of Sullivan &
Cromwell, counsel to the Trust. It deals only with Securities held as capital
assets by a Holder who acquires its Securities at the issue price from an
Underwriter pursuant to the original offering, and not with special classes of
Holders, such as dealers in securities or currencies, banks, life insurance
companies, persons who are not United States Holders (as defined below), persons
that hold Securities that are part of a hedging transaction, straddle or
conversion transaction, or persons whose functional currency is not the U.S.
dollar. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change or different interpretation at any time, perhaps with
retroactive effect. It should be noted that the Trust has not sought a ruling
from the Internal Revenue Service with respect to the federal income tax
consequences of ownership of Securities, and the opinion of counsel of Sullivan
& Cromwell is not binding on the Internal Revenue Service.
Prospective purchasers of Securities should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any state, local or other taxing jurisdiction, of ownership of
Securities.
A United States Holder is a beneficial owner of Securities who or that is
(i) a citizen or resident of the United States, (ii) a domestic corporation or
(iii) otherwise subject to United States federal income taxation on a net income
basis in respect of Securities.
Holders should also be aware that there are alternative characterizations
of the assets of the Trust which could result in different federal income tax
consequences. See "Alternative Characterizations" below. While Sullivan &
Cromwell does not believe these alternative characterizations should apply for
federal income tax purposes, there can be no assurance in this regard, and
Holders should consult their tax advisors concerning the risks associated with
alternative characterizations. The following discussion assumes that no such
alternative characterizations will apply.
TAX STATUS OF THE TRUST. The Trust will be treated as a grantor trust for
federal income tax purposes, and each Holder will be considered the owner of its
pro rata portions of the stripped U.S. Treasury securities and the Contract in
the Trust under the grantor trust rules of the Code. Income received by the
Trust will be treated as income of the Holders in the manner set forth below.
RECOGNITION OF ORIGINAL ISSUE DISCOUNT ON THE U.S. TREASURY
SECURITIES. The U.S. Treasury securities in the Trust will consist of stripped
U.S. Treasury securities. A Holder will be required to treat its pro rata
portion of each U.S. Treasury security initially acquired by the Trust with the
proceeds from the sale of the Securities to Holders as a bond that was
originally issued on the date the Trust acquired the relevant U.S. Treasury
securities and will include original issue discount in income over the life of
the U.S. Treasury securities in an amount equal to the Holder's pro rata portion
of the excess of the amounts payable on such U.S. Treasury securities over the
price of the U.S. Treasury securities at the time the Trust acquires them. The
amount of such excess will constitute only a portion of the total amounts
payable in respect of U.S. Treasury securities held by the Trust, however.
Consequently, a substantial portion of each quarterly cash distribution to the
Holders will be treated as a tax-free return of the Holders' investment in the
U.S. Treasury securities and will not be considered current income for federal
income tax purposes. See "Investment Objective and Policies -- Tax Treatment of
Distributions".
A Holder (whether on the cash or accrual method of tax accounting) will be
required to include original issue discount (other than original issue discount
on short-term U.S. Treasury securities as defined below) in income for federal
income tax purposes as it accrues on a constant yield basis. The Trust expects
that more than 20% of the Holders will be accrual basis taxpayers, in which case
original issue discount on any short-term U.S. Treasury security (i.e., any U.S.
Treasury security
28
<PAGE> 31
with a maturity of one year or less from the date it is purchased) held by the
Trust also will be required to be included in income by the Holders as it is
accrued. Unless a Holder elects to accrue the original issue discount on a
short-term U.S. Treasury security according to a constant yield method based on
daily compounding, such original issue discount will be accrued on a
straight-line basis.
EXTENSION OF THE EXCHANGE DATE. Holders should not be required to include
any amounts in income upon the Trust's receipt of additional U.S. Treasury
Securities as a result of the extension of the Exchange Date by the Seller and
should not be required to include any original issue discount in respect of such
U.S. Treasury Securities.
Although there is no direct authority for the treatment of the cash
distribution paid on the Securities on the extended Exchange Date, it is likely
that such distribution should not be considered income to a Holder upon receipt,
but instead should be considered to reduce a Holder's basis with respect to such
Holder's pro rata portion of the Contract held by the Trust, by analogy to the
treatment of rebates or option premiums. If such treatment is respected, receipt
of the cash distribution on the extended Exchange Date will increase the amount
of gain (or decrease the amount of loss) recognized by a Holder on a subsequent
sale or other disposition of the Contract or the Common Stock (including a
disposition pursuant to cash settlement of the Contract). Because there can be
no assurance that the Internal Revenue Service will agree with this
characterization of the cash distribution paid on the extended Exchange Date,
Holders are urged to consult their tax advisors concerning the tax consequences
of receiving such payment.
TAX BASIS OF THE U.S. TREASURY SECURITIES AND THE CONTRACT. A Holder's
initial tax basis in the Contract and the U.S. Treasury securities,
respectively, will equal its pro rata portion of the amounts paid for them by
the Trust. It is currently anticipated that % and % of the net
proceeds of the offering will be used by the Trust to purchase the U.S. Treasury
securities and as payments for the Contract, respectively. A Holder's tax basis
in the U.S. Treasury securities will be increased by the amounts of original
issue discount included in income in respect of U.S. Treasury securities and
decreased by each amount of cash received in respect of U.S. Treasury
securities. A Holder's tax basis in the Contract will be reduced by the receipt
of any cash distributions paid by the Seller as a result of an extension of the
Exchange Date (See "-- Extension of the Exchange Date," above).
TREATMENT OF THE CONTRACT. Each Holder will be treated as having entered
into a pro rata portion of the Contract and, at the Exchange Date, as having
received a pro rata portion of the Common Stock or cash, Marketable Securities
or a combination thereof delivered to the Trust.
DISTRIBUTION OF THE COMMON STOCK. The delivery of Common Stock to the
Trust pursuant to the Contract and the Trust's distribution of Common Stock to
the Holders will not be taxable to the Holders. Each Holder's basis in its
Common Stock will be equal to its basis in its pro rata portion of the Contract
less the portion of such basis allocable to any fractional shares of Common
Stock for which cash is received. A Holder will recognize short-term capital
gain or loss upon receipt by the Trust of cash in lieu of fractional shares of
Common Stock equal to the difference between the Holder's allocable portion of
the amount of cash received and the Holder's basis in such fractional shares.
The holding period for the Common Stock will begin on the day after it is
acquired by the Trust.
DISTRIBUTION OF CASH. If the Trust receives cash upon settlement of the
Contract, a Holder will recognize capital gain or loss equal to the difference
between the Holder's allocable portion of the amount of cash received and the
Holder's basis of the Contract settled therefor. Any gain or loss will be
capital gain or loss which is taxable to Holders as described below under "Sale
of Securities".
SALE OF SECURITIES. A Holder who sells Securities will be treated as
having sold its pro rata portions of the U.S. Treasury securities and the
Contract underlying the Securities. The Holder will therefore recognize capital
gain or loss equal to the difference between the amount realized and the
Holder's aggregate tax bases in its pro rata portions of the U.S. Treasury
securities and the
29
<PAGE> 32
Contract. Any gain or loss will be long-term capital gain or loss if the Trust
has held the relevant property for more than one year Long-term capital gain of
an individual Holder will be subject to a maximum tax rate of 28% in respect of
property held for more than one year. The maximum rate is reduced to 20% in
respect of property held in excess of 18 months.
ALTERNATIVE CHARACTERIZATIONS. Sullivan & Cromwell believes the Contract
should be treated for federal income tax purposes as prepaid forward contracts
for the purchase of a variable number of shares of Common Stock.
The Internal Revenue Service could conceivably seek to treat the Contract
differently. The Internal Revenue Service might, for example, seek to treat the
cash paid to the Seller pursuant to the Contract as loans to the Seller in
exchange for contingent debt obligations of the Seller. If the Internal Revenue
Service were to prevail in making such an assertion, a Holder might be required
to include original issue discount in income over the life of the Securities at
a market rate of interest for the Seller, taking account of all the relevant
facts and circumstances. In addition, a Holder would be required to include
interest (rather than capital gain) in income on the Exchange Date in an amount
equal to the excess, if any, of the value of the Common Stock received on the
Exchange Date (or the proceeds from cash settlement of the Contract) over the
aggregate of the basis of the Contract and any interest on the Contract
previously included in income (or might be entitled to an ordinary deduction to
the extent of interest previously included in income and not ultimately
received). The Internal Revenue Service could also conceivably take the view
that a Holder should include in income the amount of cash actually received each
year in respect of the Securities.
BACKUP WITHHOLDING AND INFORMATION REPORTING. The payments of principal
and original issue discount on the U.S. Treasury securities, and the proceeds
received from cash settlement of the Contract or the sale of Securities may be
subject to U.S. backup withholding tax at the rate of 31% if the Holder thereof
fails to supply an accurate taxpayer identification number or otherwise to
comply with applicable U.S. information reporting or certification requirements.
Any amounts so withheld will be allowed as a credit against such Holder's U.S.
federal income tax liability and may entitle such Holder to a refund, provided
that the required information is furnished to the Internal Revenue Service.
After the end of each calendar year, the Trust will furnish to each record
Holder of Securities an annual statement containing information relating to the
payments on the U.S. Treasury securities received by the Trust. The Trust will
also furnish annual information returns to each record Holder of the Securities
and to the Internal Revenue Service.
30
<PAGE> 33
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Trust has agreed to sell to Goldman Sachs, as Underwriters, and the Underwriters
agreed to purchase from the Trust, 2,650,000 Securities.
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Securities offered
hereby, if any are taken.
The Underwriters propose to offer the Securities in part directly to the
public at the price to the public set forth on the cover page of this Prospectus
and in part to certain securities dealers at such price less a concession of
$ per Security. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per Security to certain
brokers and dealers. After the Securities are released for sale to the public,
the offering price and other selling terms may from time to time be varied by
the Underwriters. The sales load of $ per Security is equal to % of
the initial public offering price. Investors must pay for any Securities
purchased in the initial public offering on or before May , 1998.
In connection with the offering, the Underwriters may purchase and sell the
Securities and the Common Stock in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover short
positions created by the Underwriters in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for the purpose of
preventing or retarding a decline in the market price of the securities or the
Common Stock; and short positions created by the Underwriters involve the sale
by the Underwriters of a greater number of Securities than they are required to
purchase from the Trust in the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to broker-dealers in respect of
the Securities sold in the offering may be reclaimed by the Underwriters if such
securities are repurchased by the Underwriters in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Securities which may be higher than the price that might
otherwise prevail in the open market, and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the NYSE, in the
over-the-counter market or otherwise.
In light of the fact that proceeds from the sale of the Securities will be
used by the Trust to purchase the Contract from the Seller, the Underwriting
Agreement provides that the Seller will pay to the Underwriters the
Underwriters' Compensation of $ per Security.
The Trust has granted the Underwriters an option exercisable for 30
calendar days after the date of this Prospectus to purchase up to an aggregate
of 397,500 additional Securities solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, they will receive the
Underwriters' Compensation referred to above for each Security so purchased.
The Seller, certain affiliated entities of the Seller and the Company have
agreed that, during the period beginning from the date of this Prospectus and
continuing to and including the date 90 days after the date of this Prospectus,
they will not offer, sell, contract to sell or otherwise dispose of any Common
Stock or other securities of the Company (other than pursuant to employee stock
option plans existing, or on the conversion or exchange of convertible or
exchangeable securities outstanding, on the date of this Prospectus) which are
substantially similar to the Common Stock or which are convertible or
exchangeable into Common Stock or other securities which are substantially
similar to the Common Stock, without the prior written consent of Goldman Sachs.
The Securities will be a new issue of securities with no established
trading market. Application has been made to list the Securities on the NYSE.
Goldman Sachs have advised the Trust that they intend to make a market in the
Securities, but they are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Securities.
31
<PAGE> 34
The Underwriters have informed the Trust that they do not expect sales to
accounts over which they exercise discretionary authority to exceed 5% of the
total number of Securities offered by them.
The Company and the Seller have agreed to indemnify the Underwriters
against certain liabilities, including certain liabilities under the Securities
Act of 1933. The Underwriters have agreed to pay certain expenses of the Trust
and to reimburse the Seller for certain expenses incurred in connection with the
Offering.
One Security has been subscribed for by Goldman Sachs at an aggregate
purchase price of $100.00. No Securities will be sold to the public until the
Securities subscribed for have been purchased and the purchase price thereof
paid in full to the Trust.
VALIDITY OF SECURITIES
The validity of the Securities will be passed upon for the Trust and the
Underwriters by their counsel, Sullivan & Cromwell, New York, New York.
EXPERTS
The financial statement included in this Prospectus has been audited by
Coopers & Lybrand L.L.P., independent accountants, as stated in their opinion
appearing herein, and has been so included in reliance upon such opinion given
upon the authority of that firm as experts in accounting and auditing.
FURTHER INFORMATION
The Trust has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement under the Securities Act of
1933, as amended, with respect to the Securities offered hereby. Further
information concerning the Securities and the Trust may be found in the
Registration Statement of which this Prospectus constitutes a part. The
Registration Statement may be inspected without charge at the Commission's
office in Washington, D.C., and copies of all or any part thereof may be
obtained from such office after payment of the fees prescribed by the
Commission. Such Registration Statement is also available on the Commission's
website (http://www.sec.gov).
32
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Securityholders of
CVS Automatic Common Exchange Security Trust:
We have audited the accompanying statement of assets and liabilities of CVS
Automatic Common Exchange Security Trust as of May , 1998. This financial
statement is the responsibility of the Trust's management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of assets and liabilities is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by the Trust's management, as well as evaluating the overall
financial statement presentation. We believe that our audit of the financial
statement provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of CVS Automatic Common
Exchange Security Trust, as of May , 1998 in conformity with generally
accepted accounting principles.
New York, New York
May , 1998
33
<PAGE> 36
CVS AUTOMATIC COMMON EXCHANGE SECURITY TRUST
STATEMENT OF ASSETS AND LIABILITIES
MAY , 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $100
----
Total assets................................................ $100
====
LIABILITIES
............................................................ $ 0
----
NET ASSETS
Balance applicable to 1 Security outstanding................ $100
----
Net asset value per Security................................ $100
====
</TABLE>
- ---------------
(1) CVS Automatic Common Exchange Security Trust (the "Trust") was established
on December 5, 1997 and has had no operations to date other than matters
relating to its organization and registration as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940. Costs incurred in connection with the organization of the Trust will
be paid by the Underwriters.
(2) The Trust proposes to sell Trust Automatic Common Exchange Securities (the
"Securities") to the public pursuant to a Registration Statement on Form N-2
under the Securities Act of 1933, as amended, and the Investment Company Act
of 1940, as amended.
The Trust is a newly organized, finite-term trust established to purchase
and hold a portfolio of stripped U.S. treasury securities and a forward
purchase contract with an existing stockholder of CVS Corporation relating
to the Common Stock of CVS Corporation. The Trust will be internally managed
and will not have an investment adviser. The administration of the Trust,
which will be overseen by the trustees, will be carried out by The Chase
Manhattan Bank as trust administrator. The Chase Manhattan Bank will also
serve as custodian for the Trust, and ChaseMellon Shareholder Services,
L.L.C. will act as paying agent, registrar and transfer agent with respect
to the Securities. Ongoing fees and anticipated expenses for the term of the
Trust will be paid for by Goldman, Sachs & Co.
(3) The Trust issued one Security on May , 1998 to Goldman, Sachs & Co. in
consideration for the aggregate purchase price of $100.
The Amended and Restated Trust Agreement provides that prior to the
offering, the Trust will split the outstanding Security to be effected on
the date that the price and underwriting discount of the Securities being
offered to the public is determined, but prior to the sale of the Securities
to Goldman, Sachs & Co. The initial Security will be split into the smallest
whole number of Securities that would result in the per Security amount
recorded as shareholders' equity after effecting the split not exceeding the
Public Offering price per Security.
34
<PAGE> 37
=======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OF SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE TRUST SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Prospectus Summary.............. 3
The Trust....................... 9
Use of Proceeds................. 9
Investment Objective and
Policies...................... 9
Risk Factors.................... 21
Description of the Securities... 22
Management and Administration of
the Trust..................... 25
Certain Federal Income Tax
Considerations................ 28
Underwriting.................... 31
Validity of Securities.......... 32
Experts......................... 32
Further Information............. 32
Report of Independent
Accountants................... 33
Statement of Assets and
Liabilities................... 34
CVS Common Stock
Prospectus.................... Appendix A
</TABLE>
------------------
UNTIL JUNE , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=======================================================
=======================================================
2,650,000 SHARES
CVS AUTOMATIC
COMMON EXCHANGE
SECURITY TRUST
$ . TRUST AUTOMATIC COMMON
EXCHANGE SECURITIES
(TRACES(TM)/(SM))
------------------
PROSPECTUS
------------------
GOLDMAN, SACHS & CO.
=======================================================
<PAGE> 38
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Part A -- Report of Independent Accountants.
Statement of Assets and Liabilities.
Part B -- None.
(b) Exhibits
<TABLE>
<S> <C>
2.a.(i) Trust Agreement**
2.a.(ii) Form of Amended and Restated Trust Agreement
2.d Form of Specimen Certificate of Trust Automatic Common
Exchange Security
(included in Exhibit 2.a.(ii))*
2.h Form of Underwriting Agreement*
2.j Form of Custodian Agreement
2.k.(i) Form of Administration Agreement
2.k.(ii) Form of Paying Agent Agreement
2.k.(iii) Form of Purchase Contract
2.k.(iv) Form of Collateral Agreement
2.k.(v) Form of Fund Expense Agreement
2.k.(vi) Form of Fund Indemnity Agreement
2.l Opinion and Consent of Counsel to the Trust*
2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained in
Exhibit 2.n.(i))*
2.n.(iii) Consent of Independent Public Accountants*
2.n.(iv) Consents to Being Named as Trustee*
2.p Form of Subscription Agreement
2.r Financial Data Schedule*
</TABLE>
- ---------------
* To be Filed by Amendment.
** Previously Filed.
ITEM 25. MARKETING ARRANGEMENTS
See the Form of Underwriting Agreement to be filed as Exhibit 2.h to this
Registration Statement.
C-1
<PAGE> 39
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:
<TABLE>
<S> <C>
Registration fees........................................... $61,723
New York Stock Exchange listing fee.........................
Printing (other than certificates)..........................
Fees and expenses of qualification under state securities
laws (excluding fees of counsel)..........................
Accounting fees and expenses................................
Legal fees and expenses.....................................
NASD fees...................................................
Miscellaneous...............................................
Total....................................................... $
=======
</TABLE>
ITEM 27. PERSON CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Prior to December 5, 1997 the Trust had no existence. As of the effective
date, the Trust will have entered into a Subscription Agreement for one Security
with Goldman, Sachs & Co. and an Underwriting Agreement with respect to
2,650,000 Securities (plus the 397,000 Securities subject to the over-allotment
option) with Goldman, Sachs & Co.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
-------------- --------------
<S> <C>
Trust Automatic Common Exchange Securities.................. 1
</TABLE>
ITEM 29. INDEMNIFICATION
The Underwriting Agreement, to be filed as Exhibit 2.h to this Registration
Statement, provides for indemnification to the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").
The Amended and Restated Trust Agreement filed as Exhibit 2.a.(ii) to this
Registration Statement provides for indemnification to each Trustee against any
claim or liability incurred in acting as Trustee of the Trust, except in the
case of willful misfeasance, bad faith, gross negligence or reckless disregard
of the Trustee's duties. The Custodian Agreement, Administration Agreement and
Paying Agent Agreement filed as Exhibits 2.j, 2.k.(i) and 2.k.(ii) to this
Registration Statement provide for indemnification to the Custodian,
Administrator and Paying Agent against any loss or expense incurred in the
performance of their obligations under the respective agreements, unless such
loss or expense is due to willful misfeasance, bad faith, gross negligence or
reckless disregard of their obligations. The Fund Indemnity Agreement filed as
Exhibit 2.k.(vi) to this Registration Statement provides that Goldman Sachs will
indemnify the Trust for certain indemnification expenses incurred under the
Amended and Restated Trust Agreement, the Custodian Agreement, the
Administration Agreement and the Paying Agent Agreement.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the
C-2
<PAGE> 40
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Not Applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Trust's accounts, books and other documents are currently located at
the offices of the Registrant, c/o Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004 and at the offices of ChaseMellon Shareholder Services,
L.L.C., 450 West 33rd Street, New York, New York 10001, the Registrant's paying
agent, transfer agent and registrar.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) The Registrant hereby undertakes to suspend offering of its units until
it amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
(b) The Registrant hereby undertakes that (i) for the purpose of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
under Rule 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; (ii) for the
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of the securities at that time shall be deemed to be the initial
bona fide offering thereof.
C-3
<PAGE> 41
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of New York, State of New York, on the 14th
day of May, 1998.
CVS AUTOMATIC COMMON
EXCHANGE SECURITY TRUST
By: /s/ PAUL S. EFRON
------------------------------------
Paul S. Efron
Trustee
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following person, in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ PAUL S. EFRON Principal Executive Officer, May 14, 1998
- --------------------------------------------------- Principal Financial Officer,
Paul S. Efron Principal Accounting Officer and
Trustee
</TABLE>
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
<S> <C> <C>
2.a.(i) Trust Agreement**...........................................
2.a.(ii) Form of Amended and Restated Trust Agreement................
2.d Form of Specimen Certificate of Trust Automatic Common
Exchange Security (included in Exhibit 2.a.(ii))*.........
2.h Form of Underwriting Agreement*.............................
2.j Form of Custodian Agreement.................................
2.k.(i) Form of Administration Agreement............................
2.k.(ii) Form of Paying Agent Agreement..............................
2.k.(iii) Form of Purchase Contract...................................
2.k.(iv) Form of Collateral Agreement................................
2.k.(v) Form of Fund Expense Agreement..............................
2.k.(vi) Form of Fund Indemnity Agreement............................
2.1 Opinion and Consent of Counsel to the Trust*................
2.n.(i) Tax Opinion of Counsel to the Trust (Consent contained in
Exhibit 2.n.(i))*.........................................
2.n.(iii) Consent of Independent Public Accountants*..................
2.n.(iv) Consents to Being Named as Trustee*.........................
2.p Form of Subscription Agreement..............................
2.r Financial Data Schedule*....................................
</TABLE>
- ---------------
* To be Filed by Amendment.
** Previously Filed.
<PAGE> 1
Exhibit 2.a.(ii)
AMENDED AND RESTATED
TRUST AGREEMENT
CONSTITUTING
CVS AUTOMATIC COMMON EXCHANGE SECURITY TRUST
Dated as of May __, 1998
<PAGE> 2
Table of Contents
Page
----
ARTICLE I
DEFINITIONS
ARTICLE II
TRUST DECLARATION; PURPOSES, POWERS
AND DUTIES OF THE TRUSTEES; ADMINISTRATION
SECTION 2.1 Declaration of Trust; Purposes of the
Trust........................................... 6
SECTION 2.2 General Powers and Duties of the
Trustees........................................ 6
SECTION 2.3 Portfolio Acquisition............................. 8
SECTION 2.4 Portfolio Administration.......................... 9
SECTION 2.5 Manner of Sales................................... 11
SECTION 2.6 Limitations on Trustees' Powers................... 12
ARTICLE III
ACCOUNTS AND PAYMENTS
SECTION 3.1 The Trust Account................................. 13
SECTION 3.2 Payment of Fees and Expenses...................... 14
SECTION 3.3 Distributions to Holders.......................... 14
SECTION 3.4 Segregation....................................... 14
SECTION 3.5 Temporary Investments............................. 14
ARTICLE IV
REDEMPTION
SECTION 4.1 Redemption........................................ 15
ARTICLE V
ISSUANCE OF CERTIFICATES;
REGISTRY; TRANSFER OF SECURITIES
<PAGE> 3
Table of Contents
Page
----
SECTION 5.1 Form of Certificate............................... 15
SECTION 5.2 Transfer of Securities; Issuance,
Transfer and Interchange of
Certificates.................................... 17
SECTION 5.3 Replacement of Certificates....................... 17
ARTICLE VI
ISSUANCE OF THE CONTRACTS
SECTION 6.1 Execution of the Contracts........................ 18
ARTICLE VII
TRUSTEES
SECTION 7.1 Trustees.......................................... 18
SECTION 7.2 Vacancies......................................... 19
SECTION 7.3 Powers............................................ 19
SECTION 7.4 Meetings.......................................... 20
SECTION 7.5 Resignation and Removal........................... 20
SECTION 7.6 Liability......................................... 21
SECTION 7.7 Compensation...................................... 21
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Meetings of Holders............................... 22
SECTION 8.2 Books and Records; Reports........................ 22
SECTION 8.3 Termination....................................... 24
SECTION 8.4 Amendment and Waiver.............................. 25
SECTION 8.5 Accountants....................................... 26
SECTION 8.6 Nature of Holder's Interest....................... 27
SECTION 8.7 New York Law to Govern............................ 27
SECTION 8.8 Notices........................................... 27
SECTION 8.9 Severability...................................... 28
SECTION 8.10 Counterparts...................................... 28
<PAGE> 4
Table of Contents
Page
----
<PAGE> 5
AMENDED AND RESTATED TRUST AGREEMENT
This Amended and Restated Trust Agreement, dated as of May __, 1998
(the "Trust Agreement"), by and between Goldman Sachs & Co., as sponsor (the
"Sponsor"), and ________________, ________________ and ________________ as
trustees (the "Trustees"), constituting CVS Automatic Common Exchange Security
Trust (the "Trust").
W I T N E S S E T H:
WHEREAS, the Sponsor and Paul S. Efron, as trustee, have previously
entered into a Declaration of Trust dated as of December 5, 1997 (the "Original
Agreement"), creating Fourth Automatic Common Exchange Security Trust;
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in certain respects; and
WHEREAS, the Trust has previously issued to the Sponsor one Security
in consideration of the aggregate purchase price therefor of $100.00;
NOW, THEREFORE, the parties hereto agree to amend and restate the
Original Agreement as provided herein. Upon the execution and delivery of copies
hereof by the parties hereto, the Original Agreement will be automatically
amended and restated in its entirety to read as provided herein.
ARTICLE I
DEFINITIONS
Whenever used in this Trust Agreement, the following words and
phrases shall have the meanings listed below. Any reference to any agreement
shall be a reference to such agreement as supplemented or amended from time to
time.
"Additional Purchase Price" - The Additional Purchase Price as
defined in the Contracts.
<PAGE> 6
"Administration Agreement" - The Administration Agreement, dated as
of the date hereof, between the Administrator and the Trustees, and any
substitute agreement therefor entered into pursuant to Section 2.2(a) hereof.
"Administrator" - __________________ or its successor as permitted
under Section 6.1 of the Administration Agreement or appointed pursuant to
Section 2.2(a) hereof.
"Average Market Price" - Average Market Price as defined in the
Contracts.
"Business Day" - A day on which the New York Stock Exchange, Inc. is
open for trading that is not a day on which banks in The City of New York are
authorized or obligated by law to close.
"Cash Settlement Alternative" - The Cash Settlement Alternative as
defined in the Contracts.
"Certificate" - Any certificate evidencing the ownership of
Securities substantially in the form of Exhibit A hereto.
"Code" - The Internal Revenue Code of 1986, as amended from time to
time; each reference herein to any section of the Code or any regulation
thereunder shall constitute a reference to any successor provision thereto.
"Collateral Agent" - ____________________, or its successor as
permitted under the Collateral Agreements.
"Collateral Agreements" - The Collateral Agreements between the
Collateral Agent and each of the Sellers, securing the Sellers' obligations
under the Contracts, substantially in the form of Exhibit B hereto.
"Commencement Date" - The day on which the Underwriting Agreement
is executed.
"Commission" - The United States Securities and Exchange Commission.
-2-
<PAGE> 7
"Common Stock" - Common Stock, par value $.01 per share, of the
Company.
"Company" - CVS Corporation, a Delaware corporation.
"Contracts" - The forward purchase contracts entered into by the
Trustees with one or more existing shareholders of the Company, substantially in
the form of Exhibit C hereto.
"Custodian" - ____________________, or its successor as permitted
under paragraph 11 of the Custodian Agreement or appointed pursuant to Section
2.2(a) hereof.
"Custodian Agreement" - The Custodian Agreement, dated as of the
date hereof, between the Custodian and the Trustees, and any substitute
agreement therefor entered into pursuant to Section 2.2(a) hereof.
"Depositary" - The Depository Trust Company, or any successor
thereto.
"Distribution Date" - Each February __, May __, August __ and
November __ of each year commencing August __, 1998, to and including May __,
2001 or if any such date is not a Business Day, then the first Business Day
thereafter.
"Excess Purchase Payment" - Excess Purchase Payment as defined under
the Contracts.
"Event of Default" - An Event of Default as defined in the
Contracts.
"Exchange" - The delivery of Shares by the Trustees to the Holders,
subject to the adjustments and exceptions set forth in the Contracts (or, to the
extent one or more Sellers elect the Cash Settlement Alternative under their
respective Contracts, the amount in cash specified in such Contracts as payable
in respect thereof), in mandatory exchange for the Securities on the Exchange
Date.
-3-
<PAGE> 8
"Exchange Date" - The Exchange Date as defined in the Contracts.
"Exchange Rate" - The Exchange Rate as defined in the Contracts.
"Firm Purchase Price" - The Firm Purchase Price as defined in the
Contracts.
"First Time of Delivery" - The First Time of Delivery as defined in
the Underwriting Agreement.
"Holder" - The registered owner of any Security as recorded on the
books of the Paying Agent.
"Indemnity Agreement" - The Fund Indemnity Agreement dated as of
the date hereof between the Trustees and the Sponsor substantially in the form
of Exhibit D hereto.
"Investment Company" - Investment Company as defined in Section 3 of
the Investment Company Act.
"Investment Company Act" - The Investment Company Act of 1940, as
amended from time to time; each reference herein to any section of such Act or
any rule or regulation thereunder shall constitute a reference to any successor
provision thereto.
"Managing Trustee" - The Trustee designated the Managing Trustee by
resolution of the Trustees.
"Marketable Securities" - Marketable Securities as defined in the
Contracts.
"Original Agreement" - The meaning specified in the recitals hereof.
"Participant" - A Person having a book-entry only system account
with the Depositary.
-4-
<PAGE> 9
"Paying Agent" - ____________________, or its successor as permitted
under Section 6.6 of the Paying Agent Agreement or appointed pursuant to Section
2.2(a) hereof.
"Paying Agent Agreement" - The Paying Agent Agreement, dated as of
the date hereof, between the Paying Agent and the Trustees, and any substitute
agreement therefor entered into pursuant to Section 2.2(a) hereof.
"Person" - An individual, a partnership, a corporation, a trust, an
unincorporated association, a joint venture or other entity or a government or
any agency or political subdivision thereof.
"Prospectus" - The prospectus relating to the Trust constituting a
part of the Registration Statement, as first filed with the Commission pursuant
to Rule 497(b) or (h) under the Securities Act, and as subsequently amended or
supplemented by the Trust.
"Quarterly Distribution" - $______ per Security paid to each Holder
on each Distribution Date.
"Record Date" - Each February __, May __, August __, and November __
of each year commencing August __, 1998.
"Registration Statement" - Registration Statement on Form N-2
(Registration No. 333-41617) of the Trust, as amended.
"Reorganization Event" - A Reorganization Event as defined in the
Contracts.
"Second Time of Delivery" - The Second Time of Delivery as defined
in the Underwriting Agreement.
"Securities Act" - The Securities Act of 1933, as amended from time
to time.
"Security" - $____ Trust Automatic Common Exchange Security of the
Trust evidencing a Holder's undivided
-5-
<PAGE> 10
interest in the Trust and right to receive a pro rata distribution upon
liquidation of the Trust Estate.
"Sellers" - The persons named as Sellers in the Contracts.
"Shares" - Shares of Common Stock to be exchanged by the Trustees
for the Securities on the Exchange Date.
"Temporary Investments" - Direct short-term U.S. government
obligations, as specified from time to time by the Trustees or through standing
instructions from the Trustees to the Administrator or the Paying Agent.
"Transfer Agent and Registrar" - ________________, as Transfer Agent
and Registrar for the Common Stock.
"Treasury Securities" - The meaning specified in Section 2.3(b)
hereof.
"Trust Account" - The account created pursuant to Section 3.1
hereof.
"Trust Estate" - The Contracts and the U.S. Treasury securities held
at any time by the Trust, together with any Temporary Investments held at any
time pursuant to Section 3.5 hereof, and any proceeds thereof or therefrom and
any other moneys held at any time in the Trust Account.
"Underwriters" - The Underwriters named in the Underwriting
Agreement.
"Underwriting Agreement" - The Underwriting Agreement as described
in the Prospectus.
ARTICLE II
TRUST DECLARATION; PURPOSES, POWERS
AND DUTIES OF THE TRUSTEES; ADMINISTRATION
-6-
<PAGE> 11
SECTION 2.1 Declaration of Trust; Purposes of the Trust. The Sponsor
hereby creates the Trust in order that it may acquire the Treasury Securities,
enter into the Contracts, issue and sell to the Sponsor and the Underwriters
the Securities, receive and redeliver additional U.S. Treasury Securities
pursuant to the Contracts, hold the Trust Estate in trust for the use and
benefit of all present and future Holders and otherwise carry out the terms and
conditions of this Trust Agreement, all for the purpose of achieving the
investment objectives set forth in the Prospectus. The Trustees hereby declare
that they will accept and hold the Trust Estate in trust for the use and benefit
of all present and future Holders. The Sponsor has heretofore deposited with the
Trustees the sum of $10 to accept and hold in trust hereunder until the issuance
and sale of the Securities to the Underwriters, whereupon such sum shall be
donated to an organization satisfying the requirements of Section 170(c)(2) of
the Code selected by unanimous consent of the Trustees.
SECTION 2.2 General Powers and Duties of the Trustees. In
furtherance of the provisions of Section 2.1 hereof, the Sponsor authorizes and
directs the Trustees:
(a) to enter into and perform (and, in accordance with Section
8.4(a) hereof, amend), the Contracts, the Collateral Agreements, the
Underwriting Agreement, the Indemnity Agreement, the Custodian Agreement,
the Administration Agreement and the Paying Agent Agreement and to perform
all obligations of the Trustees (including the obligation to provide
indemnity hereunder and thereunder) and enforce all rights and remedies of
the Trust under each of such agreements; and if any of the Custodian
Agreement, the Administration Agreement, the Collateral Agreements and the
Paying Agent Agreement terminates, or the agent of the Trust thereunder
resigns or is discharged, to appoint a substitute agent and enter into a
new agreement with such substitute agent containing provisions
substantially similar to those contained in the agreement being
terminated; provided that in any such new agreement (i) the Custodian and
the Paying Agent shall each be a commercial bank or
-7-
<PAGE> 12
trust company organized and existing under the laws of the United States
of America or any state therein, shall have full trust powers and shall
have minimum capital, surplus and retained earnings of not less than
$100,000,000; and (ii) the Administrator and the Collateral Agent shall
each be a reputable financial institution qualified in all respects to
carry out its obligations under the Administration Agreement or the
Collateral Agreements, as the case may be;
(b) to hold the Trust Estate in trust, to create and administer the
Trust Account, to direct payments received by the Trust to the Trust
Account and to make payments out of the Trust Account as set forth in
Article III hereof;
(c) to issue and sell to the Underwriters an aggregate of up to
_________ Securities (including those Securities subject to the
over-allotment option of the Underwriters provided for in the Underwriting
Agreement) pursuant to the Underwriting Agreement and as contemplated by
the Prospectus; provided, however, that subsequent to the determination of
the public offering price per Security and related underwriting discount
for the Securities to be sold to the Underwriters but prior to the sale
of the Securities to the Underwriters, the Securities originally issued to
the Sponsor shall be split into a greater number of Securities so that
immediately following such split the value of each Security held by the
Sponsor will equal the aforesaid public offering price;
(d) to select independent public accountants and, subject to the
provisions of Section 8.5 hereof, to engage such independent public
accountants;
(e) to engage legal counsel and, to the extent required by Section
2.4 hereof, to engage professional advisors and pay reasonable
compensation thereto;
(f) to defend any action commenced against the Trustees or the Trust
and to prosecute any action which
-8-
<PAGE> 13
the Trustees deem necessary to protect the Trust and the rights and
interests of Holders, and to pay the costs thereof;
(g) to arrange for the bonding of officers and employees of the
Trust as required by Section 17(g) of the Investment Company Act and the
rules and regulations thereunder;
(h) to delegate any and all of its powers and duties hereunder as
contemplated by the Custodian Agreement, the Paying Agent Agreement and
the Administration Agreement, to the extent permitted by applicable law;
and
(i) to adopt and amend bylaws, and take any and all such other
actions as necessary or advisable to carry out the purposes of the Trust,
subject to the provisions hereof and applicable law, including, without
limitation, the Investment Company Act.
SECTION 2.3 Portfolio Acquisition. In furtherance of the provisions
of Section 2.1 hereof, the Sponsor further specifically authorizes and directs
the Trustees:
(a) to enter into the Contracts with respect to the Shares subject
thereto with the Sellers on the Commencement Date for settlement on the
date or dates provided thereunder and, subject to satisfaction of the
conditions set forth in the Contracts, to pay the Firm Purchase Price and
the Additional Purchase Price, if any, thereunder with the proceeds of the
sale of the Securities, net of expenses payable in connection with the
public offering of the Securities as described in Section 3.2 hereof and
net of the purchase price paid for the Treasury Securities as provided in
paragraph (b) below; and, subject to the adjustments and exceptions set
forth in the Contracts, the Contracts shall entitle the Trust to receive
from each of the Sellers on the Exchange Date the Shares subject thereto
(or, if one or more Sellers elect the Cash Settlement Alternative under
the Contracts, the amount in cash
-9-
<PAGE> 14
specified in such Contracts in respect thereof) so that the Trust may
execute the Exchange with the Holders; and
(b) to purchase for settlement at the First Time of Delivery, and at
the Second Time of Delivery, as appropriate, with the proceeds of the sale
of the Securities, net of expenses payable in connection with the public
offering of the Securities, U.S. Treasury securities from such brokers or
dealers as the Trustees shall designate in writing to the Administrator
having the terms set forth on Schedule I hereto ("Treasury Securities").
SECTION 2.4 Portfolio Administration. In furtherance of the
provisions of Section 2.1 hereof, the Sponsor further specifically authorizes
and directs the Trustees:
(a) Determination of Dilution, Merger or Acceleration Adjustments.
Upon receipt of any notice pursuant to Section 5.4(b) of the Contracts of
an event requiring an adjustment to the Exchange Rate, or upon otherwise
acquiring knowledge of such an event, to calculate the required adjustment
and furnish notice thereof to the Collateral Agent and the Sellers, or to
request from the Sellers such further information as may be necessary to
calculate or effect the required adjustment;
(b) Selection of Independent Investment Bank. Upon receipt of notice
of (i) the occurrence of a Reorganization Event in which property other
than cash or Marketable Securities is to be received in respect of the
Common Stock as described in Section 6.2 of the Contracts or (ii) an
Excess Purchase Payment in which the Company has paid or will pay
consideration other than cash as described in Section 6.1(d) of the
Contracts, to select and retain a nationally recognized investment banking
firm to determine the market value of such property as provided in the
Contracts, and to deliver to the Sellers notice pursuant to Section 8.1
-10-
<PAGE> 15
of the Contracts identifying the firm proposed to be selected and
retained, and to consult with the Sellers on such selection and retention
as provided in such Section 8.1;
(c) Acceleration. In the event (i) an acceleration of a Contract
shall occur due to an Event of Default as provided in Article VII of the
Contracts, or (ii) a Reorganization Event shall occur in respect of which
the consideration received by holders of Common Stock does not include
Marketable Securities, as contemplated by Section 6.2 of the Contracts,
to liquidate a proportionate amount (in the case of clause (i)) or all (in
the case of clause (ii)) of the Treasury Securities and distribute the
proceeds thereof pro rata to each of the Holders of Securities, together
with any shares of Common Stock or other amounts to be distributed to the
Holders of Securities, in each case in accordance with the Contracts and
the Collateral Agreements;
(d) Additional U.S. Treasury Securities. To accept additional U.S.
Treasury securities delivered to the Trust in connection with an extension
of the Exchange Date at Sellers' election in accordance with Section
1.3(e) of the Contracts, and to redeliver such U.S. Treasury securities in
connection with an acceleration of the Exchange Rate at Sellers' election
in accordance with Section 1.3(f) of the Contracts;
(e) Determination of Exchange Date Amounts. To calculate, on the
Exchange Date, the number of Shares (or, if one or more Sellers elect the
Cash Settlement Alternative under the Contracts, the amount in cash)
required to be delivered by each of the Sellers under Section 1.1 of the
Contracts or, if a Reorganization Event shall have occurred, the amount of
cash required to be delivered by the Sellers, and the number of Marketable
Securities permitted to be delivered by the Sellers in lieu of all or a
portion of such cash, all as provided in Section 6.2 of the Contracts,
-11-
<PAGE> 16
and to furnish notice of the amounts so determined to the Collateral Agent
and the Sellers; and
(f) Distribution of Exchange Consideration. Unless a Reorganization
Event shall have occurred (in which event distribution of proceeds shall
be governed by Section 8.3 below) or one or more Sellers elect the Cash
Settlement Alternative under the Contracts (in which event the cash
received in respect thereof shall be distributed pro rata to the Holders
of Securities promptly after receipt thereof):
(i) Determination of Fractional Shares. To determine, on the
Exchange Date: (A) for each Holder of Securities, such Holder's pro
rata share of the total number of Shares delivered to the Trustees
under the Contracts on the Exchange Date; and (B) the number of
fractional Shares allocable to each Holder (including, in the case
of the Depositary, fractional shares allocable to beneficial owners
of Securities who own through Participants) and in the aggregate;
(ii) Cash for Fractional Shares. To sell, in the principal
market therefor, on the Exchange Date, a number of Shares equal to
the aggregate number of fractional Shares determined pursuant to
clause (i) (B) above, rounded down to the nearest integral number;
and to determine the difference between (A) the aggregate proceeds
of such sale (net of any brokerage or related expenses) and (B) the
product of the number of Shares so sold and the Average Market
Price; and, in accordance with the Indemnity Agreement, to pay such
difference, if positive, to Goldman, Sachs & Co., or to request
payment of such difference, if negative, from Goldman, Sachs & Co.;
(iii) Delivery of Shares. To deliver the remaining Shares to
the Transfer Agent and Registrar on the Exchange Date, with
instructions that such Shares be re-registered and re-issued as
-12-
<PAGE> 17
follows: (A) for and in the name of each Holder (other than the
Depositary) who holds Securities in definitive form, the Transfer
Agent and Registrar shall be instructed to issue definitive
certificates representing a number of Shares equal to such Holder's
pro rata share of the total delivered to the Trustees under the
Contracts, rounded down to the nearest integral number; (B) the
Transfer Agent and Registrar shall be instructed to transfer all
remaining Shares to the account of the Custodian held through the
Depositary, who shall then be instructed to transfer and credit
such Shares to each Participant who holds Securities, with each
Participant receiving its pro rata share of the total Shares
delivered to the Trust on the Exchange Date, reduced by the
aggregate fractional shares allocable to such Participant;
(iv) Distribution of Cash in Respect of Fractional Shares. To
distribute to each Holder of Securities cash in the amount of: (A)
the fraction of a Share, if any, allocable to such Holder as
determined pursuant to clause (i) (B) above; times (B) the Average
Market Price;
(v) Distribution of Cash Received upon Acceleration of
Exchange Date. If the Exchange Date shall have been accelerated
pursuant to Section 1.3(f) of the Contracts, to distribute to each
Holder its pro rata share of the cash received by the Trust in
connection therewith; and
(vi) Record Date. The distributions described in this
paragraph (f) shall be made to Holders of record as of the close of
business on the Business Day preceding the Exchange Date.
SECTION 2.5 Manner of Sales. Any sale of Trust property permitted
under Section 8.3(c) hereof shall be made through such executing brokers or to
such dealers as the Trustees, seeking best price and execution for the Trust,
-13-
<PAGE> 18
shall designate in writing to the Paying Agent, taking into account such factors
as price, commission, size of order, difficulty of execution and brokerage skill
required.
SECTION 2.6 Limitations on Trustees' Powers. The Trustees are not
permitted:
(a) to purchase or hold any securities or instruments except for the
Shares, the Contracts, the Treasury Securities, any additional U.S.
Treasury securities delivered to the Trust in connection with an extension
of the Exchange Date, the Temporary Investments contemplated by Section
3.5 hereof and, in the event of a Reorganization Event, Marketable
Securities;
(b) to dispose of the Contracts prior to the Exchange Date;
(c) to issue any securities or instruments except for the
Securities, or to issue any Securities other than the Securities sold to
the Sponsor and the Securities to be sold pursuant to the Underwriting
Agreement and until such Securities have been so purchased and paid for in
full;
(d) to make short sales or purchases on margin;
(e) to write put or call options;
(f) to borrow money;
(g) to underwrite securities;
(h) to purchase or sell real estate, commodities or commodities
contracts;
(i) to purchase restricted securities;
(j) to make loans; or
(k) to take any action, or direct or permit the Administrator, the
Paying Agent or the Custodian to
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take any action, that would vary the investment of the Holders within the
meaning of Treasury Regulation Section 301.7701-4(c), or otherwise take
any action or direct or permit any action to be taken that would or could
cause the Trust not to be a "grantor trust" under the Code.
ARTICLE III
ACCOUNTS AND PAYMENTS
SECTION 3.1 The Trust Account. The Trustees shall, upon issuance of
the Securities, establish with the Paying Agent an account to be called the
"Trust Account". All moneys received by the Trustees in respect of the
Contracts, the Treasury Securities, any other U.S. Treasury securities delivered
to the Trust and any Temporary Investments held pursuant to Section 3.5 hereof,
all moneys received from the sale of the Securities to the Sponsor, and any
proceeds from the sale to the Underwriters of the Securities after the purchase
of the Contracts and the Treasury Securities and the payment of the Trust's
expenses described in Section 3.2 hereof shall be credited to the Trust Account.
SECTION 3.2 Payment of Fees and Expenses. If so directed by the
Sellers, the Administrator is authorized to pay, from the amounts payable to the
Sellers pursuant to the Contracts, the fees and expenses of the Trust incurred
in connection with the offering of the Securities and the costs and expenses
incurred in the organization of the Trust.
SECTION 3.3 Distributions to Holders. On or shortly after each
Distribution Date the Trustees shall distribute to each Holder of record at the
close of business on the preceding Record Date, at the post office address of
the Holder appearing on the books of the Trust or Paying Agent or by any other
means mutually agreed upon by the Holder and the Trustees, an amount equal to
such Holder's pro rata share of the Quarterly Distribution computed as of the
close of business on such Distribution Date.
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SECTION 3.4 Segregation. All moneys and other assets deposited or
received by the Trustees hereunder shall be held by them in trust as part of the
Trust Estate until required to be disbursed or otherwise disposed of in
accordance with the provisions of this Trust Agreement, and the Trustees shall
handle such moneys and other assets in such manner as shall constitute the
segregation and holding in trust within the meaning of the Investment Company
Act.
SECTION 3.5 Temporary Investments. To the extent necessary to enable
the Paying Agent to make the next succeeding Quarterly Distribution, any moneys
deposited with or received by the Trustees in the Trust Account shall be
invested as soon as possible by the Paying Agent in Temporary Investments
maturing no later than the Business Day preceding the next following
Distribution Date. Except as otherwise specifically provided herein or in the
Paying Agent Agreement, the Paying Agent shall not have the power to sell,
transfer or otherwise dispose of any Temporary Investment prior to the maturity
thereof, or to acquire additional Temporary Investments. The Paying Agent shall
hold any Temporary Investments to its maturity and shall apply the proceeds
thereof upon maturity to the payment of the next succeeding Quarterly
Distribution. All such Temporary Investments shall be selected from time to time
by the Trustees or pursuant to standing instructions from the Trustees to the
Administrator, and the Administrator and/or Paying Agent shall have no liability
to the Trust or any Holder or any other Person with respect to any such
Temporary Investment. Any interest or other income received on any moneys in the
Trust Account shall, upon receipt thereof, be deposited into the Trust Account.
Notwithstanding the foregoing, not more than 5% of the assets of the Trust may
be held at any time in the form of cash and Temporary Investments, and the
Trustees shall distribute cash, or liquidate Temporary Investments and
distribute the proceeds thereof, if, when and to the extent needed to maintain
compliance with the foregoing restriction.
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ARTICLE IV
REDEMPTION
SECTION 4.1 Redemption. The Trustees shall have no right or
obligation to redeem Securities.
ARTICLE V
ISSUANCE OF CERTIFICATES; REGISTRY; TRANSFER OF SECURITIES
SECTION 5.1 Form of Certificate. Each Certificate evidencing
Securities shall be countersigned manually or in facsimile by the Managing
Trustee and executed manually by the Paying Agent in substantially the form of
Exhibit A hereto with the blanks appropriately filled in, shall be dated the
date of execution and delivery by the Paying Agent and shall represent a
fractional undivided interest in the Trust, the numerator of which fraction
shall be the number of Securities set forth on the face of such Certificate and
the denominator of which shall be the total number of Securities outstanding at
that time. All Securities shall be issued in registered form and shall be
numbered serially.
The Certificates delivered to the Underwriters at the First Time of
Delivery and the Second Time of Delivery (if any) will be issued in the form of
a global Certificate or Certificates representing the Securities issued to the
Underwriters, to be delivered to The Depository Trust Company, as depositary
("DTC"), by or on behalf of the Trust. Such Certificate or Certificates shall
initially be registered on the books and records of the Trust in the name of
Cede & Co., the nominee of DTC, and no beneficial owner of such Securities will
receive a definitive Certificate representing such beneficial owner's interest
in such Securities, except as provided in the next paragraph. Unless and until
definitive, fully registered Certificates have been issued pursuant to the next
paragraph, the Trust shall be entitled to deal with DTC for all purposes of this
Agreement as the Holder and the sole holder of the Certifi-
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cates and shall have no obligation to the beneficial owners thereof, and none of
the Trust, the Trustees, or any agent of the Trust or the Trustees shall have
any liability with respect to or responsibility for the records of DTC.
If DTC elects to discontinue its services as securities depository,
then definitive Certificates shall be prepared by the Trust. Upon surrender of
the global Certificate or Certificates accompanied by registration instructions,
the Trustees shall cause definitive Certificates to be delivered to the
beneficial owners in accordance with the instructions of DTC. Neither the
Trustees nor the Trust shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions.
Pending the preparation of definitive Certificates, the Trustees
may execute and the Paying Agent shall authenticate and deliver temporary
Certificates (printed, lithographed, typewritten or otherwise reproduced, in
each case in form satisfactory to the Paying Agent). Temporary Certificates
shall be issuable as registered Certificates substantially in the form of the
definitive Certificates but with such omissions, insertions and variations as
may be appropriate for temporary Certificates, all as may be determined by the
Trustees with the concurrence of the Paying Agent. Every temporary Certificate
shall be executed by the Managing Trustee and be authenticated by the Paying
Agent upon the same conditions and in substantially the same manner, and with
like effect, as the definitive Certificates. Without unreasonable delay the
Managing Trustee shall execute and shall furnish definitive Certificates and
thereupon temporary Certificates may be surrendered in exchange therefor without
charge at each office or agency of the Paying Agent and the Paying Agent shall
authenticate and deliver in exchange for such temporary Certificates definitive
Certificates for a like aggregate number of Securities. Until so exchanged, the
temporary Certificates shall be entitled to the same benefits hereunder as
definitive Certificates.
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SECTION 5.2 Transfer of Securities; Issuance, Transfer and
Interchange of Certificates. Securities may be transferred by the Holder thereof
by presentation and surrender of properly endorsed Certificates at the office of
the Paying Agent, accompanied by such documents executed by the Holder or his
authorized attorney as the Paying Agent deems necessary to evidence the
authority of the person making the transfer. Certificates issued pursuant to
this Trust Agreement are interchangeable for one or more other Certificates in
an equal aggregate number of Securities and all Certificates issued as may be
requested by the Holder and deemed appropriate by the Paying Agent shall be
issued in denominations of one Security or any multiple thereof. The Paying
Agent may deem and treat the person in whose name any Security shall be
registered upon the books of the Paying Agent as the owner of such Security for
all purposes hereunder and the Paying Agent shall not be affected by any notice
to the contrary. The transfer books maintained by the Paying Agent for the
purposes of this Section 5.2 hereof shall include the name and address of the
record owners of the Securities and shall be closed in connection with the
termination of the Trust pursuant to Section 8.3 hereof.
A sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any such transfer shall be paid to the Paying
Agent by the Holder. A Holder may be required to pay a fee for each new
Certificate to be issued pursuant to the preceding paragraph in such amount as
may be specified by the Paying Agent and approved by the Trustees.
All Certificates cancelled pursuant to this Trust Agreement may be
voided by the Paying Agent in accordance with the usual practice of the Paying
Agent or in accordance with the instructions of the Trustees; provided, however,
that the Paying Agent shall not be required to destroy cancelled Certificates.
The Paying Agent may adopt other reasonable rules and regulations
for the registration, transfer and tender of Securities as it may, in its
discretion, deem necessary.
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SECTION 5.3 Replacement of Certificates. In case any Certificate
shall become mutilated or be destroyed, stolen or lost, the Paying Agent shall
execute and deliver a new Certificate in exchange and substitution therefor upon
the Holder's furnishing the Paying Agent with proper identification and
satisfactory indemnity, complying with such other reasonable regulations and
conditions as the Paying Agent may prescribe and paying such expenses and
charges, including any bonding fee, as the Paying Agent may incur or reasonably
impose; provided that if the Trust has terminated or is in the process of
terminating, the Paying Agent, in lieu of issuing such new Certificate, may,
upon the terms and conditions set forth herein, make the distributions set forth
in Section 8.3(c) hereof. Any mutilated Certificate shall be duly surrendered
and cancelled before any duplicate Certificate shall be issued in exchange and
substitution therefor. Upon issuance of any duplicate Certificate pursuant to
this Section 5.3 hereof, the original Certificate claimed to have been lost,
stolen or destroyed shall become null and void and of no effect, and any bona
fide purchaser thereof shall have only such rights as are afforded under Article
8 of the Uniform Commercial Code to a Holder presenting a Certificate for
transfer in the case of an overissue.
ARTICLE VI
ISSUANCE OF THE CONTRACTS
SECTION 6.1 Execution of the Contracts. The Contracts shall be
countersigned manually or in facsimile by the Managing Trustee and executed
manually by each of the Sellers and shall be dated the date of execution and
delivery by each of the Sellers.
ARTICLE VII
TRUSTEES
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SECTION 7.1 Trustees. The Trust shall have three Trustees who shall
initially be elected by the Sponsor. One Trustee shall be the Managing Trustee
and, as such, is authorized to execute documents and instruments on behalf of
the Trust. The Managing Trustee will be appointed by resolution of the Trustees.
Each Trustee shall serve until the next regular annual or special meeting of
Holders called for the purpose of electing Trustees and, then, until such
Trustee's successor is duly elected and qualified. Holders may not cumulate
their votes in the election of Trustees. Each Trustee shall not be considered to
have qualified for the office unless such Trustee shall agree to be bound by the
terms of this Trust Agreement and shall evidence his consent by executing this
Trust Agreement or a supplement hereto.
SECTION 7.2 Vacancies. Any vacancy in the office of a Trustee may be
filled in compliance with Sections 10 and 16 of the Investment Company Act by
the vote, within thirty days, of the remaining Trustees; provided that if
required by Section 16 of the Investment Company Act, the Trustees shall
forthwith cause to be held as promptly as possible and in any event within sixty
days (unless the Commission by order shall extend such period) a meeting of
Holders for the purpose of electing Trustees in compliance with Sections 10 and
16 of the Investment Company Act. Until a vacancy in the office of any Trustee
is filled as provided above, the remaining Trustees in office, regardless of
their number, shall have the powers granted to the Trustees and shall discharge
all the duties imposed upon the Trustees by this Trust Agreement. Election shall
be by the affirmative vote of Holders of a majority of the Securities entitled
to vote present in person or by proxy at a special meeting of Holders called for
the purpose of electing any Trustee. Each individual Trustee shall be at least
21 years of age and shall not be under any legal disability. No Trustee who is
an "interested person", as defined in the Investment Company Act, may assume
office if it would cause the composition of the Trustees of the Trust not to be
in compliance with the percentage limitations on interested persons in Section
10 of the Investment Company Act. Trustees need not be Holders. Notice of the
appointment or
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election of a successor Trustee shall be mailed promptly after acceptance of
such appointment by the successor Trustee to each Holder.
SECTION 7.3 Powers. The Trust will be managed solely by the
Trustees, who will, subject to the provisions of Article II hereof, have
complete and exclusive control over the management, conduct and operation of the
Trust's business, and shall have the rights, powers and authority of a board of
directors of a corporation organized under New York law. The Trustees shall have
fiduciary responsibility for the safekeeping and use of all funds and assets of
the Trust and shall not employ, or permit another to employ, such funds or
assets in any manner except for the exclusive benefit of the Trust and except in
accordance with the terms of this Trust Agreement. Subject to the continuing
supervision of the Trustees and as permitted by applicable law, the functions of
the Trust shall be performed by the Custodian, the Paying Agent, the
Administrator and such other entities engaged to perform such functions as the
Trustees may determine, including, without limitation, any or all administrative
functions.
SECTION 7.4 Meetings. Meetings of the Trustees shall be held from
time to time upon the call of any Trustee on not less than 48 hours' notice
(which may be waived by any or all of the Trustees in writing either before or
after such meeting or by attendance at the meeting unless the Trustee attends
the meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened). The Trustees shall act either by majority vote of the Trustees
present at a meeting at which at least a majority of the Trustees then in office
are present or by a unanimous written consent of the Trustees without a meeting.
Except as otherwise required under the Investment Company Act, all or any of the
Trustees may participate in a meeting of the Trustees by means of a conference
telephone call or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to such communications
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equipment shall constitute presence in person at such meeting.
SECTION 7.5 Resignation and Removal. Any Trustee may resign and be
discharged of the trust created by the Trust Agreement by executing an
instrument in writing resigning as Trustee, filing the same with the
Administrator and sending notice thereof to the remaining Trustees, and such
resignation shall become effective immediately unless otherwise specified
therein. Any Trustee may be removed in the event of incapacity by vote of the
remaining Trustees and for any reason by written declaration or vote of the
Holders of more than 66 2/3% of the outstanding Securities, notice of which vote
shall be given to the remaining Trustees and the Administrator. The resignation,
removal or failure to reelect any Trustee shall not cause the termination of the
Trust.
SECTION 7.6 Liability. The Trustees shall not be liable to the Trust
or any Holder for any action taken or for refraining from taking any action
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties of their office. Specifically, without
limitation, the Trustees shall not be responsible for or in respect of the
recitals herein or the validity or sufficiency of this Trust Agreement or for
the due execution hereof by any other Person, or for or in respect of the
validity or sufficiency of Securities or certificates representing Securities
and shall in no event assume or incur any liability, duty or obligation to any
Holder or to any other Person, other than as expressly provided for herein. The
Trustees may employ agents, attorneys, administrators, accountants and auditors,
and shall not be answerable for the default or misconduct of any such Persons if
such Persons shall have been selected with reasonable care. Action in good faith
may include action taken in good faith in accordance with an opinion of counsel.
In no event shall any Trustee be personally liable for any expenses with respect
to the Trust. Each Trustee shall be indemnified from the Trust Account with
respect to any claim, liability, loss or expense incurred in acting as Trustee
of the Trust, including the costs and expenses of the defense against any
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such claim or liability, except in the case of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties of his office.
SECTION 7.7 Compensation. Each Trustee, other than a Trustee who is
a director, officer or employee of the Sponsor, any Underwriter, or the
Administrator or any affiliate thereof, shall receive a one-time, up-front fee
of $______, in respect of its annual fee and anticipated out-of-pocket expenses.
In addition, the Managing Trustee shall receive an additional one-time, up-front
fee of $_____ for serving in such capacity. The Trustees will not receive any
pension or retirement benefits. In the event of the resignation or removal of a
Trustee, such Trustee shall remit to the Trust the portion of its fee ratable
for the period from the day of such resignation or removal through the Exchange
Date.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 Meetings of Holders. The Trustees shall not hold annual
or regular meetings of Holders except as set forth herein. A special meeting may
be called at any time by the Trustees or upon petition of Holders of not less
than 51% of the Securities outstanding (unless substantially the same matter was
voted on during the preceding 12 months), and shall be called as provided in
Section 7.2 hereof (or as otherwise required by the Investment Company Act and
the rules and regulations thereunder, including, without limitation, when
requested by the Holders of not less than 10% of the Securities outstanding for
the purposes of voting upon the question of the removal of any Trustee or
Trustees). The Trustees shall establish, and notify the Holders in writing of,
the record date for each such meeting which shall be not less than 10 nor more
than 50 days before the meeting date. Holders at the close of business on the
record date will be entitled to vote at the meeting. The Administrator shall, as
soon as possible after any such record date (or prior to such record date if
appropriate),
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mail by first class mail to each Holder a notice of meeting and a proxy
statement and form of proxy in the form approved by the Trustees and complying
with the Investment Company Act and the rules and regulations thereunder. Except
as otherwise specified herein or in any provision of the Investment Company Act
and the rules and regulations thereunder, any action may be taken by vote of
Holders of a majority of the Securities outstanding present in person or by
proxy if Holders of a majority of Securities outstanding on the record date are
so represented. Each Security shall have one vote and may be voted in person or
by duly executed proxy. Any proxy may be revoked by notice in writing, by a
subsequently dated proxy or by voting in person at the meeting, and no proxy
shall be valid after eleven months following the date of its execution. Any
Investment Company owning Securities in excess of the limits imposed by Sections
12(d)(1)(A)(i) and 12(d)(1)(C) of the Investment Company Act will be required to
vote its Securities in proportion to the votes of all other Holders.
SECTION 8.2 Books and Records; Reports. (a) The Trustees shall keep
a certified copy or duplicate original of this Trust Agreement on file at the
office of the Trust and the office of the Administrator available for inspection
at all reasonable times during its usual business hours by any Holder. The
Trustees shall keep proper books of record and account for all the transactions
under this Trust Agreement at the office of the Trust and the office of the
Administrator, and such books and records shall be open to inspection by any
Holder at all reasonable times during usual business hours. The Trustees shall
retain all books and records in compliance with Section 31 of the Investment
Company Act and the rules and regulations thereunder.
(b) With each payment to Holders the Paying Agent shall set forth,
either in the instruments by means of which payment is made or in a separate
statement, the amount being paid from the Trust Account expressed as a dollar
amount per Security and the other information required under Section 19 of the
Investment Company Act and the rules and regulations thereunder. The Trustees
shall prepare and file or distribute reports as required by Section 30 of the
Investment
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Company Act and the rules and regulations thereunder. The Trustees shall prepare
and file such reports as may from time to time be required to be filed or
distributed to Holders under any applicable state or Federal statute or rule or
regulation thereunder, and shall file such tax returns as may from time to time
be required under any applicable state or Federal statute or rule or regulation
thereunder. One of the Trustees shall be designated by resolution of the
Trustees to make the filings and give the notices required by Rule 17g-1 under
the Investment Company Act.
(c) In calculating the net asset value of the Trust as required by
the Investment Company Act, (i) the Treasury Securities will be valued at the
mean between the last current bid and asked prices or, if quotations are not
available, as determined in good faith by the Trustees, (ii) short-term
investments having a maturity of 60 days or less will be valued at cost with
accrued interest or discount earned included in interest receivable and (iii)
the Contracts will be valued on the basis of the bid price received by the Trust
in respect of the Contracts, or any portion thereof covering not less than 1000
shares, from an independent broker-dealer firm unaffiliated with the Trust to be
named by the Trustees who is in the business of making bids on financial
instruments similar to the Contracts and with terms comparable thereto.
SECTION 8.3 Termination. (a) This Trust Agreement and the Trust
created hereby shall terminate upon the earliest of (i) the date 90 days after
the execution of this Trust Agreement if (x) the Securities have not theretofore
been issued or (y) the net worth of the Trust is not at least $100.00 at such
time, (ii) the date of the repayment, sale or other disposition, as the case may
be, of all of the Contracts, the Treasury Securities and any other securities
held hereunder, (iii) the date 10 Business Days after the Exchange Date (or, if
the Contracts shall be accelerated pursuant to Article VII thereof or Section
6.2 thereof, 10 Business Days after the date on which the Trust shall receive
the Shares or other consideration then required to be delivered by each of the
Sellers, or the proceeds of any
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sale of collateral pursuant to Section 8(c) of the Collateral Agreements), and
(iv) the date which is 21 years less 91 days after the death of the last
survivor of all of the descendants of Joseph P. Kennedy living on the date
hereof. The Trust is irrevocable, the Sponsor has no right to withdraw any
assets constituting a portion of the Trust Estate, and the dissolution of the
Sponsor shall not operate to terminate the Trust. The death or incapacity of any
Holder shall not operate to terminate this Trust Agreement, nor entitle his
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust, and shall
not otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Written notice of any termination shall be sent to Holders
specifying the record date for any distribution to Holders and the time of
termination as determined by the Trustees, upon which the books maintained by
the Paying Agent pursuant to Section 5.2 hereof shall be closed.
(c) For purposes of termination under Sections 8.3(a)(ii), (iii) and
(iv) hereof, within five Business Days after such termination, the Trustees
shall, subject to any applicable provisions of law, effect the sale of any
remaining property of the Trust, and the Paying Agent shall distribute pro rata
as soon as practicable thereafter to each Holder, upon surrender for
cancellation of its Certificates, its interest in the Trust Estate. Together
with the distribution to the Holders, the Trustees shall furnish the Holders
with a final statement as of the date of the distribution of the amount
distributable with respect to each Security.
SECTION 8.4 Amendment and Waiver. (a) This Trust Agreement, and any
of the agreements referred to in Section 2.2(a) hereof, may be amended from time
to time by the Trustees for any purpose prior to the issuance and sale to the
Underwriters of the Securities and thereafter without the consent of any of the
Holders (i) to cure any ambiguity or to correct or supplement any provision
contained herein or therein which may be defective or inconsistent with any
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other provision contained herein or therein; (ii) to change any provision hereof
or thereof as may be required by applicable law or the Commission or any
successor govern mental agency exercising similar authority; or (iii) to make
such other provisions in regard to matters or questions arising hereunder or
thereunder as shall not materially adversely affect the interests of the Holders
(as determined in good faith by the Trustees, who may rely on an opinion of
counsel).
(b) This Trust Agreement may also be amended from time to time by
the Trustees (or the performance of any of the provisions of the Trust Agreement
may be waived) with the consent by the required vote of the Holders in
accordance with Section 8.1 hereof; provided that this Trust Agreement may not
be amended, without the consent by vote of the Holders of all Securities then
outstanding, (i) to increase the number of Securities issuable hereunder above
the number of Securities specified in Section 2.2(c) hereof or such lesser
number as may be outstanding at any time during the term of this Trust
Agreement, (ii) to reduce the interest in the Trust represented by Securities
without the consent of the Holders of such Securities, (iii) if such amendment
is prohibited by the Investment Company Act or other applicable law, (iv)
without the consent by vote of the Holders of all Securities then outstanding,
if such amendment would effect a change in the voting requirements set forth in
Section 8.1 hereof or this Section 8.4, or (v) without the consent by vote of
the Holders of the lesser of (x) 67% or more of the Securities represented at a
special meeting of Holders, if more than 50% of the Securities outstanding are
represented at such meeting, and (y) more than 50% of the Securities
outstanding, if such amendment would effect a change in Section 2.1 or 2.6
hereof.
(c) Promptly after the execution of any amendment, the Trustees
shall furnish written notification of the substance of such amendment to each
Holder.
(d) Notwithstanding subsections (a) and (b) of this Section 8.4 no
amendment hereof shall permit the Trust,
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the Trustees, the Administrator, the Paying Agent or the Custodian to take any
action or direct or permit any Person to take any action that (i) would vary the
investment of Holders within the meaning of Treasury Regulation Section
301.7701-4(c), or (ii) would or could cause the Trust, or direct or permit any
action to be taken that would or could cause the Trust, not to be a "grantor
trust" under the Code.
SECTION 8.5 Accountants.
(a) The Trustees shall, in accordance with Section 30 of the
Investment Company Act, file annually with the Commission such information,
documents and reports as investment companies having securities registered on a
national securities exchange are required to file annually pursuant to Section
13(a) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations issued thereunder. The Trustees shall transmit to the Holders, at
least semi-annually, the reports required by Section 30(d) of the Investment
Company Act and the rules and regulations thereunder, including, without
limitation, a balance sheet accompanied by a statement of the aggregate value of
investments on the date of such balance sheet, a list showing the amounts and
values of such investments owned on the date of such balance sheet, and a
statement of income for the period covered by the report. Financial statements
contained in such annual reports shall be accompanied by a certificate of
independent public accounts based upon an audit not less in scope or procedures
than that which independent public accountants would ordinarily make for the
purpose of presenting comprehensive and dependable financial statements and
shall contain such information as the Commission may prescribe. Each such report
shall state that such independent public accountants have verified investments
owned, either by actual examination or by receipt of a certificate from the
Custodian.
(b) The independent public accountants referred to in subsection (a)
above shall be selected at a meeting held within thirty days before or after the
beginning of the fiscal year by the vote, cast in person, of a majority of the
Trustees who are not "interested persons" as defined in
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the Investment Company Act and such selection shall be submitted for
ratification at the first meeting of Holders to be held as set forth in Section
8.1 hereof, and there after as required by the Investment Company Act and the
rules and regulations thereunder. The employment of any independent public
accountant for the Trust shall be conditioned upon the right of the Holders by a
vote of the lesser of (i) 67% or more of the Securities present at a special
meeting of Holders, if Holders of more than 50% of Securities outstanding are
present or represented by proxy at such meeting or (ii) more than 50% of the
Securities outstanding to terminate such employment at any time without penalty.
(c) The foregoing provisions of this Section 8.5 are in addition to
any applicable requirements of the Investment Company Act and the rules and
regulations there under.
SECTION 8.6 Nature of Holder's Interest. Each Holder holds at any
given time a beneficial interest in the Trust Estate, but does not have any
right to take title or possession of any portion of the Trust Estate. Each
Holder expressly waives any right he may have under any rule of law, or the
provisions of any statute, or otherwise, to require the Trustees at any time to
account, in any manner other than as expressly provided in this Trust Agreement,
for the Shares, the Contracts, the Treasury Securities or other assets or monies
from time to time received, held and applied by the Trustees hereunder. No
Holder shall have any right except as provided herein to control or determine
the operation and management of the Trust or the obligations of the parties
hereto. Nothing set forth herein or in the certificates representing Securities
shall be construed to constitute the Holders from time to time as partners or
members of an association.
SECTION 8.7 New York Law to Govern. This Trust Agreement is executed
and delivered in the State of New York, and all laws or rules of construction of
the State of New York shall govern the rights of the parties hereto and
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the Holders and the construction, validity and effect of the provisions hereof.
SECTION 8.8 Notices. Any notice, demand, direction or instruction
to be given to the Sponsor hereunder shall be in writing and shall be duly given
if mailed or delivered to Goldman, Sachs & Co., 85 Broad Street, New York, New
York 10004, Attention: Registration Department, or at such other address as
shall be specified by the Sponsor to the other parties hereto in writing. Any
notice, demand, direction or instruction to be given to the Trust and the
Trustees hereunder shall be in writing and shall be duly given if mailed or
delivered to the Trust at __________________, New York, New York _____ and to
each Trustee at such Trustee's address set forth beneath its signature below, or
such other address as shall be specified to the other parties hereto by such
party in writing. Any notice to be given to a Holder shall be duly given if
mailed, first class postage prepaid, or by such other substantially equivalent
means as the Trustees may deem appropriate, or delivered to such Holder at the
address of such Holder appearing on the registry of the Paying Agent.
SECTION 8.9 Severability. If any one or more of the covenants,
agreements, provisions or terms of this Trust Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms
shall be deemed severable from the remaining covenants, agreements, provisions
and terms of this Trust Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Trust Agreement or of the
Certificates, or the rights of the Holders thereof.
SECTION 8.10 Counterparts. This Trust Agreement may be executed in
counterparts, and as so executed will constitute one agreement, binding on all
of the parties hereto.
-31-
<PAGE> 36
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed.
GOLDMAN, SACHS & CO.
By:
--------------------------------
TRUSTEES:
-----------------------------------
Name:
Address:
-----------------------------------
Name:
Address:
-----------------------------------
Name:
Address:
<PAGE> 37
Schedule I
TREASURY SECURITIES
All terms specified are for stripped principal or interest
components of U.S. Treasury debt obligations.
<TABLE>
<CAPTION>
================================================================================
FIRST TIME OF DELIVERY
- --------------------------------------------------------------------------------
PAR ZERO-COUPON STRIP RATE PRICE COST
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
SETTLEMENT DATE:
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
================================================================================
SECOND TIME OF DELIVERY
- --------------------------------------------------------------------------------
PAR ZERO-COUPON STRIP RATE PRICE COST
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
SETTLEMENT DATE:
</TABLE>
<PAGE> 39
Exhibit A
Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to CVS
Automatic Common Exchange Security Trust or its agent for registration of
transfer, exchange, or payment, and any certificate issued is registered
in the name of Cede & Co. (or in such other name as is requested by an
authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein. This
certificate may be exchanged by an authorized representative of DTC in
whole or in part for securities in definitive form, registered in the
names of such holders as such representative of DTC shall specify, in
which case, a new certificate will be issued in the name of Cede & Co. (or
in such other name as is requested by such authorized representative of
DTC) representing the securities not issued in definitive form.
THIS CERTIFICATE IS ISSUED UNDER AND IS SUBJECT TO THE TERMS, PROVISIONS AND
CONDITIONS OF THE TRUST AGREEMENT REFERRED TO BELOW TO WHICH THE HOLDER OF THIS
CERTIFICATE BY VIRTUE OF THE ACCEPTANCE HEREOF ASSENTS AND IS BOUND.
$____ TRUST AUTOMATIC COMMON EXCHANGE SECURITIES
CVS AUTOMATIC COMMON EXCHANGE SECURITY TRUST
CUSIP NO. ___________
NO.______ ____________ SHARES
THIS CERTIFIES THAT CEDE & CO. IS THE RECORD OWNER OF ____________ $____ TRUST
AUTOMATIC COMMON EXCHANGE SECURITIES OF CVS AUTOMATIC COMMON EXCHANGE SECURITY
TRUST CONSTITUTING FRACTIONAL UNDIVIDED INTERESTS IN CVS AUTOMATIC COMMON
EXCHANGE SECURITY TRUST, A TRUST CREATED UNDER THE LAWS OF THE STATE OF NEW YORK
PURSUANT TO A TRUST AGREEMENT BETWEEN GOLDMAN, SACHS & CO. AND THE TRUSTEES
NAMED THEREIN. THIS CERTIFICATE IS ISSUED UNDER AND IS SUBJECT TO THE TERMS,
PROVISIONS AND CONDITIONS OF THE TRUST AGREEMENT TO WHICH THE
<PAGE> 40
HOLDER OF THIS CERTIFICATE BY VIRTUE OF THE ACCEPTANCE HEREOF ASSENTS AND IS
BOUND, A COPY OF WHICH TRUST AGREEMENT IS AVAILABLE AT THE OFFICE OF THE TRUST'S
ADMINISTRATOR AND PAYING AGENT, __________________, NEW YORK, NEW YORK _____.
THIS CERTIFICATE IS TRANSFERABLE AND INTERCHANGEABLE BY THE REGISTERED OWNER IN
PERSON OR BY HIS DULY AUTHORIZED ATTORNEY AT THE OFFICE OF THE PAYING AGENT UPON
SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR ACCOMPANIED BY A WRITTEN
INSTRUMENT OF TRANSFER AND ANY OTHER DOCUMENTS THAT THE PAYING AGENT MAY REQUIRE
FOR TRANSFER, IN FORM SATISFACTORY TO THE PAYING AGENT AND PAYMENT OF THE FEES
AND EXPENSES PROVIDED IN THE TRUST AGREEMENT.
THIS CERTIFICATE IS NOT VALID UNLESS MANUALLY COUNTERSIGNED BY THE
PAYING AGENT.
WITNESS THE FACSIMILE SIGNATURE OF THE MANAGING TRUSTEE.
CVS Automatic Common Exchange
Security Trust
DATED: May __, 1998
By
--------------------------------
Managing Trustee
COUNTERSIGNED:
- ---------------------,
as Paying Agent
By
---------------------------
Authorized Signature
-2-
<PAGE> 1
Exhibit 2.j
CUSTODIAN AGREEMENT
This CUSTODIAN AGREEMENT dated as of this _th day of May, 1998 by
and between _____________, a _____________ banking corporation (the
"Custodian"), and William R. Latham III, James B. O'Neill and Donald J. Puglisi
(collectively, the "Trustees"), not in their individual capacities but solely as
Trustees of CVS Automatic Common Exchange Security Trust (the "Trust"), a trust
organized under the laws of the State of New York, under and by virtue of an
Amended and Restated Trust Agreement, dated as of May __, 1998 (the "Trust
Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold certain U.S. treasury
securities (the "Treasury Securities"), to enter into and hold forward purchase
contracts (the "Contracts") with one or more existing shareholders of CVS
Corporation (the "Company"), and to issue Trust Automatic Common Exchange
Securities (the "Securities") in accordance with the terms and conditions of the
Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the Custodian
to perform certain custodial duties for the Trust; and
WHEREAS, the Custodian is qualified and willing to assume such
duties, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the respective meanings specified in the Trust Agreement.
<PAGE> 2
2. Appointment of Custodian; Transfer of Assets. The Trustees hereby
constitute and appoint the Custodian, and the Custodian accepts such
appointment, as custodian of all of the property, including but not limited to,
the Contracts, the Treasury Securities, U.S. Treasury securities delivered to
the Trust in connection with an extension of the Exchange Date, the Temporary
Investments, any cash and any other property at any time owned or held by the
Trust (collectively, the "Assets"). The Trustees hereby deposit the Assets with
the Custodian and the Custodian hereby accepts such into its custody and the
Trustees shall deliver to the Custodian all of the Assets, including all monies,
securities and other property received by the Trust at any time during the
period of this Agreement, subject to the following terms and conditions. The
Custodian hereby agrees that it shall hold the Assets in a segregated custody
account, separate and distinct from all other accounts, in accordance with
Section 17(f) of, and in such manner as shall constitute the segregation and
holding in trust within the meaning of, the Investment Company Act and the rules
and regulations thereunder. The Trustees authorize the Custodian, for any Assets
held hereunder, to use the services of any United States securities depository
permitted to perform such services for registered investment companies and their
custodians under Rule 17f-4 under the Investment Company Act and which have been
approved by the Trustees, including but not limited to, the Depository Trust
Company and the Federal Reserve Book Entry System. The Custodian shall invest
monies on deposit in such custody account in the Temporary Investments in
accordance with Section 3.5 of the Trust Agreement. Except as otherwise
specifically provided in the Trust Agreement, the Custodian shall not have the
power to sell, transfer or otherwise dispose of any Temporary Investments prior
to the maturity thereof, or to acquire additional Temporary Investments. The
Custodian shall hold any Temporary Investments to maturity and shall apply (or
cause to be applied) the proceeds thereof paid upon maturity to the payment of
the next succeeding Quarterly Distribution. All such Temporary Investments shall
be selected by the Trustees from time to time or pursuant to standing
instructions from the Trustees,
-2-
<PAGE> 3
and the Custodian shall have no liability to the Trust or any Holder or any
other Person with respect to any such Temporary Investments.
3. Asset Disposition; Examinations. The Custodian shall have no
power or authority to assign, hypothecate, pledge or otherwise dispose of the
Assets, except pursuant to a written direction in accordance with paragraph 4
below and then only for the account of the Trust. The Assets shall be subject to
no lien or charge of any kind in favor of the Custodian for itself or for any
other Person claiming through the Custodian. The Custodian shall permit actual
examination of the Assets by the Trust's independent public accountant at the
end of each annual and semi-annual fiscal period of the Trust and at least one
other time during the fiscal year of the Trust chosen by such independent public
accountant and shall permit the inspection of the Assets by the Commission
through its employees or agents during the normal business hours of the
Custodian upon reasonable request.
4. Authorized Actions. The Custodian shall take such actions with
respect to the Assets as directed in writing by the Trustees or by any officer
of the Administrator as may be received by the Custodian from time to time.
5. Custodian's Actions Taken In Good Faith. In connection with the
performance of its duties under this Agreement, the Custodian shall be under no
liability to the Trust or any Holder for any action taken in good faith in
reliance on any paper, order, certification, list, demand, request, consent,
affidavit, notice, opinion, direction, endorsement, assignment, resolution,
draft or other document, prima facie properly executed, or for the disposition
of the Assets pursuant to the Trust Agreement or in respect of any action taken
or suffered under the Trust Agreement in good faith, in accordance with an
opinion of counsel or at the direction of the Trustees pursuant hereto; provided
that this provision shall not protect the Custodian against any liability to
which it would otherwise be subject by reason of its reckless disregard of its
obligations and
-3-
<PAGE> 4
duties hereunder. Notwithstanding any other provision of this Agreement, the
Custodian shall under no circumstances be liable for any indirect or
consequential damages.
6. Trust Agreement Validity. The Custodian shall not be responsible
for the validity or sufficiency of the Trust Agreement or the due execution
thereof, or for the form, character, genuineness, sufficiency, value or validity
of any of the Assets and the Custodian shall in no event assume or incur any
liability, duty or obligation to any Holder or to the Trustees, other than as
expressly provided for herein. The Custodian shall not be responsible for or in
respect of the validity of any signature by or on behalf of the Trustees.
7. Litigation Obligations, Costs and Indemnity. The Custodian shall
not be under any obligation to appear in, prosecute or defend any action which
in its opinion may involve it in expense or liability, unless it shall be
furnished with such reasonable security and indemnity against such expense or
liability as it may require, and any pecuniary costs of the Custodian from such
actions shall be expenses which are reimbursable pursuant to paragraph 13
hereof.
8. Taxes; Trust Expenses. In no event shall the Custodian be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the Assets or upon the monies, securities or other properties
included therein. The Custodian shall be reimbursed and indemnified by the
Trustees for all such taxes and charges, for any tax or charge imposed against
the Trust and for any expenses, including counsel fees, interest, penalties and
additions to tax which the Custodian may sustain or incur with respect to such
taxes or charges.
9. Custodian Resignation, Succession. (a) The Custodian may resign
by executing an instrument in writing resigning as Custodian and delivering the
same to the Trustees, not less than 60 days before the date specified in such
instrument when, subject to clause (b) of this paragraph 9, such resignation is
to take effect. Upon
-4-
<PAGE> 5
receiving such notice of resignation, the Trustees shall use their reasonable
efforts promptly to appoint a successor Custodian in the manner and meeting the
qualifications provided in the Trust Agreement, by written instrument or
instruments delivered to the resigning Custodian and the successor Custodian.
(b) In case no successor Custodian shall have been appointed within
30 days after notice of resignation has been received by the Trustees, the
resigning Custodian may forthwith apply to a court of competent jurisdiction for
the appointment of a successor Custodian. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribed, appoint a successor
Custodian.
10. Custodian Removal. The Trustees may remove the Custodian upon 60
days' prior written notice to the Custodian and appoint a successor Custodian.
In case at any time the Custodian shall not meet the requirements set forth in
the Trust Agreement or shall become incapable of acting or if a court having
jurisdiction shall enter a decree or order for relief in respect of the
Custodian in an involuntary case, or the Custodian shall commence a voluntary
case, under any applicable bankruptcy, insolvency, or other similar law now or
hereafter in effect, or any receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) for the Custodian or for any substantial part
of its property shall be appointed, or the Custodian shall make any general
assignment for the benefit of creditors, or shall generally fail to pay its
debts as they become due, the Trustees may remove the Custodian immediately and
appoint a successor Custodian. The termination of the Administration Agreement
or the Paying Agent Agreement shall cause the removal of the Custodian
simultaneously therewith.
11. Transfers to Successor Custodian. Upon the request of any
successor Custodian, the Custodian hereunder shall, upon payment of all amounts
due it, execute and deliver an instrument acknowledged by it transferring to
such successor Custodian all the rights and powers of the resigning Custodian;
and the resigning Custodian shall
-5-
<PAGE> 6
transfer, deliver and pay over to the successor Custodian the Assets at the time
held by it hereunder, if any, together with all necessary instruments of
transfer and assignment or other documents properly executed necessary to effect
such transfer and such of the records or copies thereof maintained by the
resigning Custodian in the administration hereof as may be requested by the
successor Custodian, and shall thereupon be discharged from all duties and
responsibilities hereunder. Any resignation or removal of the Custodian shall
become effective upon such acceptance of appointment by the successor Custodian.
The indemnification of the resigning Custodian provided for hereunder shall
survive any resignation, discharge or removal of the Custodian hereunder.
12. Custodian Merger, Consolidation. Any corporation into which the
Custodian may be merged or converted or with which it may be consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Custodian shall be a party, shall be the successor Custodian hereunder and
under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the Trust Agreement
and provided further that the Trust has given its prior written consent to the
Custodian with respect to any such merger, conversion or consolidation.
13. Compensation; Expenses. The Custodian shall receive compensation
for performing the usual, ordinary, normal and recurring services under this
Custodian Agreement and, with the prior written approval of the Trustees,
reimbursement for any and all expenses and disbursements incurred hereunder, as
provided in Section 3.1 of the Administration Agreement.
14. Section 17(f) Qualification. The Custodian hereby represents
that it is qualified to act as a custodian under Section 17(f) of the Investment
Company Act.
-6-
<PAGE> 7
15. Custodian's Limited Liability. The Trustees shall indemnify and
hold the Custodian harmless from and against any loss, damages, cost or expense
(including the costs of investigation, preparation for and defense of legal
and/or administrative proceedings related to a claim against it and reasonable
attorneys' fees and disbursements), liability or claim incurred by reason of any
inaccuracy in information furnished to the Custodian by the Trustees, or any act
or omission in the course of, connected with or arising out of any services to
be rendered hereunder, provided that the Custodian shall not be indemnified and
held harmless from and against any such loss, damages, cost, expense, liability
or claim arising from its willful misfeasance, bad faith or gross negligence in
the performance of its duties, or its reckless disregard of its duties and
obligations hereunder. Neither the Federal Reserve Book Entry System nor the
Depository Trust Company shall be deemed to be agents of the Custodian.
16. Rights of Set-Off; Banker's Lien. The Custodian hereby waives
all rights of set-off or banker's lien it may have with respect to the Assets
held by it as Custodian hereunder.
17. Termination. This Agreement shall terminate upon the earlier of
the termination of the Trust or the appointment of a successor Custodian.
18. Choice of Law. This Agreement is executed and delivered in the
State of New York, and all laws or rules of construction of the State of New
York shall govern the right of the parties hereto and the interpretation of the
provisions hereof.
19. Notices. Any notice to be given to the Trust hereunder shall be
in writing and shall be duly given if mailed or delivered to CVS Automatic
Common Exchange Security Trust, c/o Donald J. Puglisi, Managing Trustee, Puglisi
& Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711, and to the
Custodian if mailed or delivered to _____________, ______________________,
Attention:
-7-
<PAGE> 8
__________ or at such other address as shall be specified by the addressee to
the other party hereto in writing.
20. No Third Party Beneficiaries. Nothing herein, express or
implied, shall give to any Person, other than the Trustees, the Custodian and
their respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim hereunder.
21. Amendments; Trust Agreement Changes; Waiver. This Agreement
shall not be deemed or construed to be modified, amended, rescinded, cancelled
or waived, in whole or in part, except by a written instrument signed by a duly
authorized representative of the party to be charged. The Trustees shall notify
the Custodian of any change in the Trust Agreement prior to the effective date
of any such change. Failure of either party hereto to exercise any right or
remedy hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
22. Counterparts. This Agreement may be signed in counterparts with
all counterparts constituting one and the same instrument.
-8-
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Custodian
Agreement to be duly executed as of the day and year first above written.
TRUSTEES
-------------------------
William R. Latham III,
as Trustee
-------------------------
James B. O'Neill,
as Trustee
-------------------------
Donald J. Puglisi,
as Trustee
-------------
By
-----------------------
Name:
Title:
-9-
<PAGE> 1
Exhibit 2.k.(i)
ADMINISTRATION AGREEMENT
This ADMINISTRATION AGREEMENT, dated as of this __th day of May,
1998, by and between _____________, a _____________ banking corporation (the
"Administrator"), and William R. Latham III, James B. O'Neill and Donald J.
Puglisi (collectively, the "Trustees"), not in their individual capacities but
solely as Trustees of CVS Automatic Common Exchange Security Trust (the
"Trust"), a trust organized under the laws of the State of New York under and by
virtue of an Amended and Restated Trust Agreement, dated as of May __, 1998 (the
"Trust Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold certain U.S. treasury
securities (the "Treasury Securities"), to enter into and hold forward purchase
contracts (the "Contracts") with one or more existing shareholders of CVS
Corporation (the "Company") and to issue Trust Automatic Common Exchange
Securities (the "Securities") in accordance with the terms and conditions of the
Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the
Administrator to assume certain duties and responsibilities of the Trustees
under the Trust Agreement and the Investment Company Act and to undertake
certain services on behalf of and subject to the supervision of the Trustees as
provided herein; and
WHEREAS, the Administrator is qualified and willing to assume such
duties and responsibilities and to undertake to render such services, subject to
the supervision of the Trustees, on the terms and conditions hereinafter set
forth.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
-2-
<PAGE> 3
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms not otherwise defined herein
shall have the respective meanings specified in the Trust Agreement.
ARTICLE II
ENGAGEMENT OF ADMINISTRATOR
2.1 Engagement. The Trustees hereby engage the Administrator, and
the Administrator hereby agrees to be so engaged, to provide the services
hereinafter enumerated.
2.2 Services of Administrator. Subject to the supervision of the
Trustees, the Administrator shall effect the matters set forth further in
Sections 2.3, 2.4 and 2.5 of the Trust Agreement, to the extent such
responsibilities can lawfully be delegated to the Administrator; provided,
however, that the Administrator shall not (i) render investment advisory
services to the Trust as defined in the Investment Company Act or the Investment
Advisers Act of 1940; (ii) have the power of the Trustees to sell the Contract
or the Treasury Securities except as provided in Sections 2.5 of the Trust
Agreement; or (iii) have the power to select the independent public accountants
for the Trust. Additionally, the Administrator shall be responsible for
rendering the following services:
(a) instruct the Paying Agent to pay out of the net proceeds of the
sale of the Securities the fees and expenses of the Trust incurred in
connection with the offering of the Securities as specified in Schedule I
to the Fund Expense Agreement;
(b) instruct the Paying Agent to pay out of the net proceeds of the
sale of the Securities the fees and expenses of the Trust incurred in
connection with the
-3-
<PAGE> 4
organization of the Trust as specified in Schedule I to the Fund Expense
Agreement;
(c) instruct the Paying Agent to effect the transactions set forth
in Sections 2.3, 2.4 and 2.5 of the Trust Agreement and to otherwise
perform the duties of the Paying Agent referred to in the Trust Agreement;
(d) with the approval of the Trustees, engage legal and other
professional advisors, subject to clause 2.2 (iii) above;
(e) receive all demands, bills and invoices for expenses incurred by
or on behalf of the Trust, and pay the same, or cause the Paying Agent to
pay the same, out of moneys paid to the Administrator pursuant to the Fund
Expense Agreement dated the date hereof between Goldman, Sachs & Co., and
_____________ (the "Fund Expense Agreement") but in no event out of any
assets of the Trust except, as provided in paragraphs (a) and (b) hereof,
and give notice to Goldman, Sachs & Co. pursuant to the Fund Indemnity
Agreement dated the date hereof between Goldman, Sachs & Co. and the
Trustees (the "Fund Indemnity Agreement") of any claim for Indemnification
Expenses (as defined in the Fund Indemnity Agreement) or any threatened
claim for Indemnification Expenses;
(f) (i) prepare and mail, file or publish, or, as appropriate,
direct the Paying Agent to prepare and mail, file or publish, any notices,
proxies, reports and other communications required to be mailed or
published pursuant to the Trust Agreement and the Investment Company Act,
(ii) keep (or cause to be kept) all the books and records of the Trust
(other than those to be kept by the Paying Agent), and (iii) prepare (or
cause to be prepared) and, as necessary, file (or cause to be filed) any
and all reports, returns and other documents as required under the
Investment Company Act, the Securities Exchange Act of 1934, or the Code,
or, as reasonably requested by the Trustees, under any other applicable
laws, rules or
-4-
<PAGE> 5
regulations or otherwise; provided, however, that responsibility for the
adequacy and accuracy of any such reports, returns, etc. shall be that of
the Trustees and provided, further, that the Administrator shall have no
liability for the adequacy or accuracy of such reports, returns, etc.;
(g) at the request of the Trustees and upon being furnished with
such reasonable security and indemnity against any related expense or
liability as the Administrator may require, institute and prosecute, in
accordance with the instructions of the Trustees, legal or other
appropriate proceedings to enforce any and all rights and remedies of the
Trust;
(h) receive and review on behalf of the Trust all notices, reports,
certificates and other documents regarding the Contract and the Treasury
Securities;
(i) make all necessary arrangements with respect to meetings of
Trustees and meetings of Holders, including, without limitation, the
preparation of notices, proxies and minutes, subject to the approval of
Trustees; and
(j) in conjunction with the Trustees, determine and publish, in such
manner as the Trustees shall direct in writing, the Trust's net asset
value in accordance with the Trust's policy as set forth in the
Prospectus.
2.3 Certain Rights of the Administrator. In connection with the
performance of its duties under this Agreement, the Administrator shall not be
liable to the Trust, the Trustees or any Holder (i) for any action taken or for
refraining from taking any action hereunder except in the case of its willful
misfeasance, bad faith, gross negligence or the reckless disregard of its duties
hereunder, (ii) with respect to any action taken or omitted to be taken by it in
good faith in accordance with the directions of the Trustees or of any Trustee
or (iii) in connection with the performance of its duties under Section
-5-
<PAGE> 6
2.2(j) hereof, for good faith reliance upon information furnished by third
parties selected by the Administrator with due care. The Administrator shall
under no circumstances be liable for any indirect or consequential damages. The
Administrator may consult with counsel and the written advice of such counsel
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in reliance
thereon. The Administrator may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys appointed with
due care by it but shall be liable for the acts and omissions of such persons to
the same extent as if the functions had been performed by the Administrator
itself. Without limiting the generality of the preceding sentence, the
Administrator (i) at its own cost, may select and employ independent accountants
acceptable to the Trustees (other than the independent public accountants
referred to in clause (iii) of Section 2.2 of this Agreement and Section 2.2(d)
of the Trust Agreement) to keep the financial books and records of the Trust, to
prepare the financial statements of the Trust and to prepare Trust tax returns,
and (ii) should the Trustees fail to do so, may select and engage attorneys
acceptable to the Trustees to prepare annual, semiannual and periodical reports,
notices of meetings and proxy statements, annual reports to holders of the
Securities and other documents required under the Investment Company Act or the
Securities Exchange Act of 1934, as amended.
2.4 Power of Attorney. The Trust hereby appoints the Administrator,
acting through any duly appointed officer, its attorney-in-fact and agent for
the purpose of performing the duties prescribed in Section 2.2(f)(iii) and
2.2(i).
2.5 Delivery of Certain Documents. The Trust will deliver to the
Administrator, promptly following the execution hereof: (a) a complete conformed
copy of the registration statement of the Trust under the Securities Act of
1933, as amended, and the Investment Company Act, including all amendments,
exhibits and schedules thereto and (b) the EDGAR access codes (Central Index
Key, CIK
-6-
<PAGE> 7
Confirmation Code, Password and Password Modification Access Code) employed to
file such registration statement.
ARTICLE III
COMPENSATION OF ADMINISTRATOR
3.1 Compensation. For services to be rendered by the Administrator
pursuant to this Agreement, and for the payment of Trust expenses pursuant to
Section 2.2(e) hereof, the Administrator shall receive only such fees and
expenses as shall be paid to it pursuant to the terms of the Fund Expense
Agreement and shall have no recourse to the assets of the Trust for the payment
of any such amounts. No provision of this Administration Agreement shall require
the Administrator to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
3.2 Additional Services. If and to the extent that the Trustees
shall request the Administrator to render services for the Trust, other than
those to be rendered by the Administrator hereunder, and if the Administrator
agrees to render such services, such additional services shall be compensated
separately on terms to be agreed upon between the Administrator and the Trustees
from time to time.
ARTICLE IV
TERMINATION
4.1 Termination.
(a) This Agreement shall terminate immediately upon written notice
of termination from the Trustees to the
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<PAGE> 8
Administrator if any of the following events shall occur:
(i) If the Administrator shall violate any provision of this
Agreement, the Trust Agreement, or the Investment Company Act, and after
notice of such violation, shall not cure such default within 30 days; or
(ii) If the Administrator shall be adjudged bankrupt or insolvent by
a court of competent juris diction, or an order shall be made by a court
of competent jurisdiction for the appointment of a receiver, liquidator,
or trustee of the Administrator, or of all or substantially all of its
property by reason of the foregoing, or approving any petition filed
against the Administrator for its reorganization, and such adjudication or
order shall remain in force or unstayed for a period of 30 days; or
(iii) If the Administrator shall institute proceedings for voluntary
bankruptcy, or shall file a petition seeking reorganization under the
Federal bankruptcy laws, or for relief under any law for the relief of
debtors, or shall consent to the appointment of a receiver of the
Administrator or of all or substantially all of its property, or shall
make a general assignment for the benefit of its creditors, or shall admit
in writing its inability to pay its debts generally as they become due; or
(iv) Upon the voluntary or involuntary dissolution of the
Administrator, or unless the Trust shall have given its prior written
consent thereto, the merger or consolidation of the Administrator with any
other entity.
If any of the events specified in clauses (ii), (iii) or (iv) of
this Section 4.1(a) shall occur, the Administrator shall give immediate written
notice thereof to the Trustees.
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<PAGE> 9
(b) Notwithstanding anything to the contrary contained herein, this
Agreement shall terminate immediately (i) upon termination of the Trust
Agreement, (ii) upon termination of the Paying Agent Agreement, (iii) upon
termination of the Collateral Agreement, (iv) upon termination of the Custodian
Agreement or (v) upon the resignation or removal of the Custodian.
(c) This Agreement may be terminated by either party hereto without
penalty upon 60 days' prior written notice to the other party hereto; provided
that neither party hereto may terminate this Agreement pursuant to this Section
4.1(c) unless a successor Administrator shall have been appointed and shall have
accepted the duties of the Administrator. If, within 30 days after notice by the
Administrator to the Trustees of termination of this Agreement, no successor
Administrator shall have been selected and accepted the duties of the
Administrator, the Administrator may apply to a court of competent jurisdiction
for the appointment of a successor Administrator.
4.2 Effect of Termination. The Administrator shall forthwith upon
termination of this Agreement deliver to the Trustees any records or other
property of the Trust then in the possession or custody of the Administrator.
Any obligation to indemnify the Administrator pursuant to Section 6.6 shall
survive the termination of this Agreement.
ARTICLE V
RECORDS AND REPORTS
5.1 Books and Records; Inspection and Copying. The Administrator
shall keep (or cause to be kept) appropriate, and reasonably detailed and
accurate, books and records of all its activities pursuant to this Agreement.
The Trustees shall have the right to inspect such books and records during the
Administrator's normal business hours upon reasonable request, and to make
copies of the same at the expense of the Trust.
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<PAGE> 10
5.2 Access to Information. The Administrator shall make available to
each of the Trustees all information it receives and compiles with respect to
the Contracts and the Treasury Securities, the monies available to the Trust,
the financial condition of the Trust and all other relevant matters concerning
the Trust.
ARTICLE VI
MISCELLANEOUS
6.1 Binding Effect. Any corporation into which the Administrator may
be merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the
Administrator shall be a party, shall be the successor Administrator hereunder
and under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the Trust Agreement
and provided further that the Trustees have given their prior written consent to
the Administrator with respect to any such merger, conversion or consolidation.
This Agreement shall be binding on and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
6.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the matters contained herein and supersedes
all prior agreements or understandings, whether oral or written. This Agreement
shall not be amended, changed, modified, or discharged, in whole or in part,
except by an instrument in writing signed by both parties hereto, or their
respective successors or permitted assigns.
6.3 Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing, and shall, unless some
other method of giving such notice, report or other communication is
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<PAGE> 11
accepted by the party to whom it is to be given or is required by the Trust
Agreement or the Investment Company Act, be given by being mailed by U.S. first
class mail, certified or registered, return receipt requested, postage prepaid,
to the following addresses of the parties hereto:
The Trust: CVS Automatic Common Exchange
Security Trust
c/o Donald J. Puglisi, Managing
Trustee
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
The Administrator: _____________
_____________
_____________
Attn: _____________
Telephone: _____________
Telecopier: _____________
Any party may at any time give written notice to the other party
that it wishes to change its address for the purposes of this Section 6.3.
6.4 Applicable Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect except to the extent such law is preempted by federal
law.
6.5 Non-assignability. This Agreement and the rights and obligations
of the parties hereunder may not be assigned or delegated by either party
without the prior written consent of the other party.
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<PAGE> 12
6.6 Indemnification. The Trustees shall indemnify and hold the
Administrator harmless from and against any loss, damages, cost or expense
(including the costs of investigation, preparation for and defense of legal
and/or administrative proceedings related to a claim against it and reasonable
attorneys' fees and disbursements), liability or claim incurred by reason of any
inaccuracy in information furnished to the Administrator by the Trustees, or any
act or omission in the course of, connected with or arising out of any services
to be rendered hereunder, provided that the Administrator shall not be
indemnified and held harmless from and against any such loss, damages, cost,
expense, liability or claim incurred by reason of its willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or its reckless
disregard of its duties and obligations hereunder.
6.7. Provisions of Law to Control. This Agreement shall be subject
to the applicable provisions of the Investment Company Act and the rules and
regulations of the Commission thereunder. To the extent that any provisions
herein contained conflict with any applicable provisions of the Investment
Company Act or such rules and regulations, the latter shall control.
6.8. Counterparts. This Agreement may be signed in counterparts with
all counterparts constituting one and the same instrument.
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<PAGE> 13
IN WITNESS WHEREOF the parties have hereunto executed this
Administration Agreement as of the day and year first above written.
TRUSTEES
------------------------------
William R. Latham III,
as Trustee
------------------------------
James B. O'Neill,
as Trustee
------------------------------
Donald J. Puglisi,
as Trustee
-------------
By____________________________
Name:
Title:
<PAGE> 1
Exhibit 2.k.(ii)
PAYING AGENT AGREEMENT
This PAYING AGENT AGREEMENT, dated as of this __th day of May, 1998,
by and between _____________, a _____________ banking corporation (the "Paying
Agent"), and William R. Latham III, James B. O'Neill and Donald J. Puglisi
(collectively, the "Trustees"), not in their individual capacities but solely as
Trustees of CVS Automatic Common Exchange Security Trust (the "Trust"), a trust
organized under the laws of the State of New York under and by virtue of an
Amended and Restated Trust Agreement, dated as of May __, 1998 (the "Trust
Agreement").
W I T N E S S E T H
WHEREAS, the Trust is a non-diversified, closed-end management
investment company, as defined in the Investment Company Act of 1940 (the
"Investment Company Act"), formed to purchase and hold the U.S. treasury
securities (the "Treasury Securities"), to enter into and hold forward purchase
contracts (the "Contracts") with one or more existing shareholders of CVS
Corporation (the "Company") and to issue Trust Automatic Common Exchange
Securities (the "Securities") to the public in accordance with the terms and
conditions of the Trust Agreement;
WHEREAS, the Trustees desire to engage the services of the Paying
Agent to assume certain responsibilities and to perform certain duties as the
transfer agent, registrar and paying agent with respect to the Securities upon
the terms and conditions of this Agreement; and
WHEREAS, the Paying Agent is qualified and willing to assume such
responsibilities and to perform such duties,
<PAGE> 2
subject to the supervision of the Trustees, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Capitalized terms not otherwise defined herein
shall have the respective meanings specified in the Trust Agreement.
ARTICLE II
PAYING AGENT
2.1 Appointment of Paying Agent and Acceptance. The Trust Agreement
provides that _____________ shall act as the initial Paying Agent. _____________
accepts such appointment and agrees to act in accordance with its standard
procedures and the provisions of the Trust Agreement and the provisions set
forth in this Article 2 as Paying Agent with respect to the Securities. Without
limiting the generality of the foregoing, _____________, as Paying Agent, agrees
that it shall establish and maintain the Trust Account, subject to the
provisions of Section 2.3 hereof.
2.2 Certificates and Notices. The Trustees shall deliver to the
Paying Agent the certificates and notices required to be delivered to the Paying
Agent pursuant to the Trust Agreement, and the Paying Agent shall mail or
publish such certificates or notices as required by the Trust Agreement, but the
Paying Agent shall have no responsibility to confirm or verify the accuracy of
certificates or notices of the Trustees so delivered.
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<PAGE> 3
2.3 Payments and Investments. The Paying Agent shall make payments
out of the Trust Account as provided for in Section 3.2 of the Trust Agreement.
The Paying Agent shall effect the transactions set forth in Sections 2.3, 2.4,
2.5 and 8.3 of the Trust Agreement upon instructions to do so from the
Administrator (except that with respect to its obligations under Section 8.3 of
the Trust Agreement, the Paying Agent shall act without instructions from the
Administrator) and shall invest monies on deposit in the Trust Account in
Temporary Investments in accordance with Section 3.5 of the Trust Agreement.
Except as otherwise specifically provided herein or in the Trust Agreement, the
Paying Agent shall not have the power to sell, transfer or otherwise dispose of
any Temporary Investment prior to the maturity thereof, or to acquire additional
Temporary Investments. The Paying Agent shall hold any Temporary Investment to
its maturity and shall apply the proceeds thereof paid upon maturity to the
payment of the next succeeding Quarterly Distribution. All such Temporary
Investments shall be selected by the Trustees from time to time or pursuant to
standing instructions from the Trustees, and the Paying Agent shall have no
liability to the Trust or any Holder or any other Person with respect to any
such Temporary Investment.
2.4 Instructions from Administrator. The Paying Agent shall receive
and execute all instructions from the Administrator, except to the extent they
conflict with or are contrary to the terms of the Trust Agreement or this
Agreement.
ARTICLE III
TRANSFER AGENT AND REGISTRAR
3.1 Original Issue of Certificates. On the date Securities sold
pursuant to the Underwriting Agreement are originally issued, certificates for
the Securities shall be issued by the Trust, and, at the request of the
Trustees, registered in such names and such denominations as the underwriters
shall have previously requested of the
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<PAGE> 4
Trustees, executed manually or in facsimile by the Managing Trustee and
countersigned by the Paying Agent. At no time shall the aggregate number of
Securities represented by such countersigned certificates exceed the number of
then outstanding Securities.
3.2 Registry of Holders. The Paying Agent shall maintain a registry
of the Holders of the Securities.
3.3 Registration of Transfer of the Securities. The Securities shall
be registered for transfer or exchange, and new certificates shall be issued, in
the name of the designated transferee or transferees, upon surrender of the old
certificates in form deemed by the Paying Agent properly endorsed for transfer
with (a) all necessary endorsers' signatures guaranteed in such manner and form
as the Paying Agent may require by a guarantor reasonably believed by the Paying
Agent to be responsible, (b) such assurances as the Paying Agent shall deem
necessary or appropriate to evidence the genuineness and effectiveness of each
necessary endorsement and (c) satisfactory evidence of compliance with all
applicable laws relating to the collection of taxes or funds necessary for the
payment of such taxes.
3.4 Lost Certificates. The Paying Agent shall issue and register
replacement certificates for certificates represented to have been lost, stolen
or destroyed, upon the fulfillment of such requirements as shall be deemed
appropriate by the Trustees and the Paying Agent, subject at all times to
provisions of law, the Trust Agreement and resolutions adopted by the Trustees
with respect to lost securities. The Paying Agent may issue new certificates in
exchange for and upon the cancellation of mutilated certificates. Any request by
the Trustees to the Paying Agent to issue a replacement or new certificate
pursuant to this Section 3.4 shall be deemed to be a representation and warranty
by the Trustees to the Paying Agent that such issuance will comply with such
provisions of law and the Trust Agreement and resolutions of the Trustees.
3.5 Transfer Books. The Paying Agent shall maintain the transfer
books listing the Holders of the
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<PAGE> 5
Securities. In case of any written request or demand for the inspection of the
transfer books of the Trust or any other books in the possession of the Paying
Agent, the Paying Agent will notify the Trustees and secure instructions as to
permitting or refusing such inspection. The Paying Agent reserves the right,
however, to exhibit the transfer books or other books to any person in case it
is advised by its counsel that its failure to do so would be unlawful.
3.6 Disposition of Cancelled Certificates; Records. The Paying Agent
shall retain certificates which have been cancelled in transfer or in exchange
and accompanying documentation in accordance with applicable rules and
regulations of the Commission for six calendar years from the date of such
cancellation, and shall make such records available during this period at any
time, or from time to time, for reasonable periodic, special, or other
examinations by representatives of the Commission and the Board of Governors of
the Federal Reserve System. Thereafter such records shall not be destroyed by
the Paying Agent but will be safely stored for possible future reference. In
case of any request or demand for the inspection of the register of the Trust or
any other books in the possession of the Paying Agent, the Paying Agent will
notify the Trustees and seek to secure instructions as to permitting or refusing
such inspection. The Paying Agent reserves the right, however, to exhibit the
register or other records to any person in case it is advised by its counsel
that its failure to do so would (i) be unlawful, or (ii) expose it to liability,
unless the Trustees shall have offered indemnification satisfactory to the
Paying Agent.
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<PAGE> 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE TRUSTEES
The Trustees represent and warrant to the Paying Agent that:
(a) the Trust is a validly existing trust under the laws of the
State of New York and the Trustees have full power under the Trust
Agreement to execute and deliver this Agreement and to authorize, create
and issue the Securities;
(b) this Agreement has been duly and validly authorized, executed
and delivered by the Trustees and constitutes the valid and binding
agreement of the Trustees, enforceable against the Trustees in accordance
with its terms, subject as to such enforceability to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equitable
principles;
(c) the form of the certificate evidencing the Securities complies
with all applicable laws of the State of New York;
(d) the Securities have been duly and validly authorized, executed
and delivered by the Trustees and are validly issued;
(e) the offer and sale of the Securities has been registered under
the Securities Act of 1933 and the Trust has been registered under the
Investment Company Act and no further action by or before any governmental
body or authority of the United States or of any state thereof is required
in connection with the execution and delivery of this Agreement or the
issuance of the Securities;
(f) the execution and delivery of this Agreement and the issuance
and delivery of the Securities do not
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<PAGE> 7
and will not conflict with, violate, or result in a breach of, the terms,
conditions or provisions of, or constitute a default under, the Trust
Agreement, any law or regulation, any order or decree of any court or
public authority having jurisdiction over the Trust, or any mortgage,
indenture, contract, agreement or undertaking to which the Trustees are a
party or by which any of them are bound; and
(g) no taxes are payable upon or in respect of the execution of this
Agreement or the issuance of the Securities.
ARTICLE V
DUTIES AND RIGHTS
5.1 Duties. (a) The Paying Agent is acting solely as agent for the
Trustees hereunder and owes no fiduciary duties to any other Person by reason of
this Agreement.
(b) In the absence of bad faith, gross negligence or willful
misfeasance on its part in the performance of its duties hereunder or its
reckless disregard of its duties and obligations hereunder, the Paying Agent
shall not be liable for any action taken, suffered, or omitted in the
performance of its duties under this Agreement. The Paying Agent shall under no
circumstances be liable for any indirect or consequential damages hereunder.
5.2 Rights. (a) The Paying Agent may rely and shall be protected in
acting or refraining from acting upon any communication authorized hereby and
upon any written instruction, notice, request, direction, consent, report,
certificate, share certificate or other instrument, paper or document reasonably
believed by it to be genuine. The Paying Agent shall not be liable for acting
upon any telephone communication authorized hereby which the Paying Agent
believes in good faith to have been given by the Trustees.
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<PAGE> 8
(b) The Paying Agent may consult with legal counsel and the advice
of such counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Paying Agent shall not be required to advance, expend or
risk its own funds or otherwise incur or become exposed to financial liability
in the performance of its duties hereunder.
(d) The Paying Agent may perform its duties and exercise its rights
hereunder either directly or by or through agents or attorneys appointed with
due care by it hereunder.
5.3 Disclaimer. The Paying Agent makes no representation as to (a)
the first two recitals of this Agreement or (b) the validity or adequacy of the
Securities.
5.4 Compensation, Expenses and Indemnification. (a) The Paying Agent
shall receive for all services rendered by it under this Agreement and, upon the
prior written approval of the Trustees, for all expenses, disbursements and
advances incurred or made by the Paying Agent in accordance with any provision
of this Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), the compensation set forth in Section
3.1 of the Administration Agreement.
(b) The Trustees shall indemnify the Paying Agent for and hold it
harmless against any loss, liability, claim or expense (including the costs of
investigation, preparation for and defense of legal and/or administrative
proceedings relating to a claim against it and reasonable attorneys' fees and
disbursements) arising out of or in connection with the performance of its
obligations under this Agreement, provided such loss, liability or expense is
not the result of gross negligence, willful misfeasance or bad faith on its part
in the performance of its duties hereunder or its reckless disregard of its
duties or obligations hereunder, including the costs and expenses of
-8-
<PAGE> 9
defending itself against any claim or liability in connection with its exercise
or performance of any of its duties or obligations hereunder and thereunder. The
indemnification provided by this Section 5.4(b) shall survive the termination of
this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Term of Agreement. (a) The term of this Agreement is unlimited
unless terminated as provided in this Section 6.1 or unless the Trust is
terminated, in which case this Agreement shall terminate ten days after the date
of termination of the Trust. This Agreement may be terminated by either party
hereto without penalty upon 60 days' prior written notice to the other party
hereto; provided that neither party hereto may terminate this Agreement pursuant
to this Section 6.1(a) unless a successor Paying Agent shall have been appointed
and shall have accepted the duties of the Paying Agent. The termination of the
Trust Agreement, the Collateral Agreement, the Administration Agreement or the
Custodian Agreement or the resignation or removal of the Custodian shall cause
the termination of this Agreement simultaneously therewith. If, within 30 days
after notice by the Paying Agent of termination of this Agreement, no successor
Paying Agent shall have been selected and accepted the duties of the Paying
Agent, the Paying Agent may apply to a court of competent jurisdiction for the
appointment of a successor Paying Agent.
(b) Except as otherwise provided in this paragraph (b), the
respective rights and duties of the Trustees and the Paying Agent under this
Agreement shall cease upon termination of this Agreement. The Trustees'
representations, warranties, covenants and obligations to the Paying Agent
under Article IV and Section 5.4 hereof shall survive the termination hereof.
Upon termination of this Agreement, the Paying Agent shall, at the Trustees'
request, promptly deliver to the Trustees or to any successor Paying Agent as
requested by the Trustees (i) copies of all books and
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<PAGE> 10
records maintained by it and (ii) any funds deposited with the Paying Agent by
the Trustees.
6.2 Communications. Except for communications authorized to be made
by telephone pursuant to this Agreement, all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and given to such person at its address or telecopy number set
forth below:
If to the Trust,
addressed: CVS Automatic Common Exchange
Security Trust
c/o Donald J. Puglisi, Managing
Trustee
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
Telephone: (302) 738-6680
Telecopier: (302) 738-7210
with a copy to the Administrator if the duties of the Administrator are being
performed by a Person other than the Person performing the obligations of the
Paying Agent.
If to the Paying Agent,
addressed: ________________
________________
________________
Attn: _____________
Telephone: _____________
Telecopier: _____________
or such other address or telecopy number as such party may hereafter specify for
such purpose by notice to the other party. Each such notice, request or
communication shall be effective when delivered at the address specified herein.
Communications shall be given on behalf of the Trust by the Trustees (or by the
Administrator, provided that the Trustees shall not have delivered to the Paying
Agent an
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<PAGE> 11
instrument in writing revoking the authorization of the Administrator to act for
it pursuant hereto) and on behalf of the Paying Agent by a Senior Vice President
or Vice President of the Paying Agent assigned to its Corporate Trust
Department.
6.3 Entire Agreement. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof, and there are no
other representations, endorsements, promises, agreements or understandings,
oral, written or inferred, between the parties relating to the subject matter
hereof.
6.4 No Third Party Beneficiaries. Nothing herein, express or
implied, shall give to any Person, other than the Trustees, the Paying Agent and
their respective successors and assigns, any benefit of any legal or equitable
right, remedy or claim hereunder.
6.5 Amendment; Waiver. (a) This Agreement shall not be deemed or
construed to be modified, amended, rescinded, cancelled or waived, in whole or
in part, except by a written instrument signed by a duly authorized
representative of the party to be charged. The Trustees shall notify the Paying
Agent of any change in the Trust Agreement prior to the effective date of any
such change.
(b) Failure of either party hereto to exercise any right or remedy
hereunder in the event of a breach hereof by the other party shall not
constitute a waiver of any such right or remedy with respect to any subsequent
breach.
6.6 Successors and Assigns. Any corporation into which the Paying
Agent may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Paying Agent shall be a party, shall be the successor Paying Agent hereunder and
under the Trust Agreement without the execution or filing of any paper,
instrument or further act to be done on the part of the parties hereto, provided
that such corporation meets the requirements set forth in the
-11-
<PAGE> 12
Trust Agreement, provided further that the Trustees have given their prior
written consent to the Paying Agent with respect to any such merger, conversion
or consolidation. This Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the respective successors of each of the Trust and the
Paying Agent. This Agreement shall not be assignable by either the Trustees or
the Paying Agent, without the prior written consent of the other party.
6.7 Severability. If any clause, provision or section hereof shall
be ruled invalid or unenforceable by any court of competent jurisdiction, the
invalidity or unenforceability of such clause, provision or section shall not
affect any of the remaining clauses, provisions or sections hereof.
6.8 Execution in Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
6.9 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
principles of conflicts of law.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Paying Agent
Agreement to be duly executed and delivered as of the date first above written.
TRUSTEES
------------------------------
William R. Latham III,
as Trustee
------------------------------
James B. O'Neill,
as Trustee
------------------------------
Donald J. Puglisi,
as Trustee
-------------
By:
---------------------------
Name:
Title:
<PAGE> 1
Exhibit 2.k.(iii)
PURCHASE AGREEMENT
THIS AGREEMENT is made as of this ____ day of May __, 1998 between
__________________, a ____________ ("Seller") and CVS Automatic Common Exchange
Security Trust, a trust organized under the laws of the State of New York under
and by virtue of an Amended and Restated Trust Agreement, dated as of May __,
1998 (the "Trust Agreement") (such trust and the trustees thereof acting in
their capacity as such being referred to herein as "Purchaser").
WHEREAS, Seller owns shares of Common Stock, par value $.01 per
share (the "Common Stock"), of CVS Corporation, a Delaware corporation (the
"Company");
WHEREAS, Purchaser has filed with the Securities and Exchange
Commission a registration statement contemplating the offering of up to
___________ Trust Automatic Common Exchange Securities (the "Securities"), the
terms of which contemplate delivery by Purchaser to the holders thereof of a
number of shares of Common Stock (or, at the option of Sellers, cash in lieu
thereof) on the Exchange Date referred to herein;
WHEREAS, Seller has agreed, pursuant to the Collateral Agreement
(the "Collateral Agreement") dated as of May __, 1998, among Purchaser, Seller,
as Pledgor and ______________, as collateral agent (the "Collateral Agent"), to
grant Purchaser a security interest in shares of Common Stock and in certain
circumstances certain other collateral to secure the obligations of Seller
hereunder;
WHEREAS, Purchaser has agreed, pursuant to an underwriting
agreement, dated May __, 1998 (the "Underwriting Agreement"), among Purchaser,
the Sellers named therein, the Company and Goldman Sachs & Co. as
representatives of the several underwriters named therein (the "Underwriters"),
to issue and sell to the Underwriters an aggregate of _____________ Securities
(the "Firm Securities") and, at the Underwriters' option, up to ____________
additional Securities (the "Optional Securities") to cover overallotments;
<PAGE> 2
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby mutually
covenant and agree as follows:
DEFINITIONS
As used herein, the following words and phrases shall have the
following meanings:
"Additional Purchase Price" has the meaning provided in Section
1.2(b).
"Additional Share Base Amount" means a number equal to the number of
Optional Securities that the Underwriters elect to purchase under the
Underwriting Agreement multiplied by a fraction, the numerator of which is the
Firm Share Base Amount and the denominator of which is the number of Firm
Securities.
"Additional Shares" has the meaning provided in Section 1.1(b).
"Additional STRIPS" means the U.S. Treasury obligations purchased by
Purchaser for settlement at the Second Time of Delivery.
"Administrator" means ________________________, administrator for
Purchaser under the Administration Agreement dated as of May __, 1998, or any
successor thereto.
"Appreciation Threshold Price" has the meaning provided in Section
1.1(c).
"Average Market Price" per share of Common Stock on any date means
the average Closing Price of a share of Common Stock on the 20 Trading Days
immediately prior to but not including such date, provided that for purposes of
determining the payment required upon cash settlement of this Agreement in
connection with a Rollover Offering, "Average Market Price" means the Closing
Price per share of
<PAGE> 3
Common Stock on the Trading Day immediately preceding the date that the Rollover
Offering is priced (the "Pricing Date") or, if the Rollover Offering is priced
after 4:00 P.M., New York City time, on the Pricing Date, the Closing Price per
share on the Pricing Date.
"Business Day" means any day on which commercial banks are open for
business in New York City and the New York Stock Exchange is not closed.
"Calculation Period" means any period of Trading Days for which an
average security price must be determined pursuant to this Agreement.
"Cash Settlement Alternative" has the meaning provided in Section
1.3(d).
"Closing Price" of any common equity security (including the Common
Stock or any Marketable Securities) on any date of determination means the daily
closing sale price (or, if no closing sale price is reported, the last reported
sale price) of such common equity security as reported on the NYSE Consolidated
Tape on such date of determination or, if such common equity security is not
listed for trading on the NYSE on any such date, as reported in the composite
transactions for the principal United States securities exchange on which such
common equity security is so listed, or if such common equity security is not so
listed on a United States national or regional securities exchange, as reported
by The NASDAQ National Market or, if such common equity security Stock is not so
reported, the last quoted bid price for such common equity security in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, provided that if any event that results in an adjustment to the
number of shares of Common Stock deliverable hereunder pursuant to Section 6.1
occurs prior to the Exchange Date, the Closing Price of the Common Stock as
determined pursuant to the foregoing will be appropriately adjusted to reflect
the occurrence of such event.
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"Collateral Agreement" means the Collateral Agreement among Seller,
as Pledgor, _________, as Collateral Agent and Purchaser, dated as of May __,
1998.
"common equity security" means any security of any class of capital
stock which has no preference in respect of dividends or of amounts payable in
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the issuer thereof and which is not subject to redemption by the issuer
thereof.
"Company Successor" has the meaning provided in Section 6.2.
"Contract Shares" has the meaning provided in Section 1.1(b).
"Custodian" means ___________________, custodian for Purchaser under
the Custodian Agreement dated as of ____________, 1998, or any successor
thereto.
"Dilution Adjustment" means any fraction or number by which the
Exchange Rate shall be multiplied pursuant to Section 6.1(a), (b), (c) or (d).
"Event of Default" has the meaning provided in Article VII.
"Excess Purchase Payment" has the meaning provided in Section
6.1(d).
"Exchange Date" means May __, 2001, subject to (i) extension by
Seller pursuant to Section 1.3(e) and (ii) subsequent acceleration by Seller
pursuant to Section 1.3(f).
"Exchange Rate" has the meaning provided in Section 1.1(c).
"Firm Purchase Price" has the meaning provided in Section 1.2(a).
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"Firm Share Base Amount" has the meaning provided in Section 1.1(a).
"Firm Shares" has the meaning provided in Section 1.1(a).
"First Time of Delivery" has the meaning provided in Section 1.3(a).
"Initial Price" has the meaning provided in Section 1.1(c).
"Liens" has the meaning provided in the Collateral Agreement.
"Marketable Securities" has the meaning provided in Section 6.2.
"NYSE" means the New York Stock Exchange, Inc.
"Permitted Dividend" has the meaning provided in Section 6.1(d).
"Reorganization Event" has the meaning provided in Section 6.2.
"Rollover Offering" means a reoffering or refinancing of all (but
not less than all) of the Securities effected not earlier than May __, 2001 by
means of a completed public offering or offerings (which may include one or more
exchange offers) by or on behalf of Seller and the other sellers that have
entered into purchase agreements with the Purchaser.
"Second Time of Delivery" has the meaning provided in Section
1.1(b).
"Then-Current Market Price" of the Common Stock, for the purpose of
applying any adjustment pursuant to Section 6.1, means the average Closing Price
per share of the Common Stock for the Calculation Period of 5 Trading Days
immediately prior to the time such adjustment is
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effected (or, in the case of an adjustment effected at the opening of business
on the Business Day next following a record date as described in Section
6.1(f)(i), immediately prior to the earlier of the time such adjustment is
effected and the related ex-date); provided that if no Closing Price for the
Common Stock is determined for one or more (but not all) of such Trading Days,
such Trading Day shall be disregarded in the calculation of the Then-Current
Market Price (but no additional Trading Days shall be added to the Calculation
Period). If no Closing Price for the Common Stock may be determined for any of
such Trading Days, the Then-Current Market Price shall be the Closing Price for
the Common Stock for the most recent Trading Day prior to such 5 Trading Days
for which a Closing Price for the Common Stock may be determined pursuant to the
"Closing Price" definition. The "ex-date" with respect to any dividend,
distribution or issuance shall mean the first date on which the shares of Common
Stock trade regular way on their principal market without the right to receive
such dividend, distribution or issuance.
"Trading Day" in respect of any common equity security means a day
on which such common equity security (A) is not suspended from trading on any
national or regional securities exchange or association or over-the-counter
market at the close of business and (B) has traded at least once on the national
or regional securities exchange or association or over-the-counter market that
is the primary market for the trading of such security.
"Transaction Value" has the meaning provided in Section 6.2.
"Transfer Restrictions" has the meaning provided in the Collateral
Agreement.
"Transferred Security" has the meaning provided in Section 1.3(g).
"Trust Agreement" means the Amended and Restated Trust Agreement
constituting CVS Automatic Common Exchange Security Trust, dated as of May __,
1998.
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"U.S. Government Securities" has the meaning provided in the
Collateral Agreement.
I.
SALE AND PURCHASE
1.1 Sale and Purchase. (a) Firm Shares. Upon the terms and subject
to the conditions of this Agreement, Seller agrees to sell to Purchaser on the
Exchange Date, and Purchaser agrees to purchase and acquire from Seller on the
Exchange Date, the number of shares of Common Stock (the "Firm Shares") equal to
the product of ________ (the "Firm Share Base Amount") and the Exchange Rate.
(b) Additional Shares. Upon the terms and subject to the conditions
of this Agreement, Seller agrees to sell to Purchaser on the Exchange Date, and
Purchaser shall have a right to purchase on the Exchange Date, a number of
additional shares of Common Stock (the "Additional Shares") equal to the product
of the Exchange Rate and the Additional Share Base Amount. If the Underwriters
exercise their option to purchase Optional Securities pursuant to the
Underwriting Agreement, Purchaser shall notify Seller in writing that Purchaser
will purchase the Additional Shares on the Exchange Date, which notice shall
specify the Additional Share Base Amount and the date on which Purchaser shall
deliver the purchase price for the Additional Shares, which shall be the Second
Time of Delivery specified pursuant to Section 2 of the Underwriting Agreement
(the "Second Time of Delivery"). The Firm Shares and the Additional Shares (if
any) are collectively referred to herein as the "Contract Shares".
(c) Exchange Rate. The "Exchange Rate" shall be determined in
accordance with the following formula, subject to adjustment as a result of
certain events as provided in Article VI: (i) if the Average Market Price is
less than $_____ (the "Appreciation Threshold Price") but equal to or greater
than $_______ (the "Initial Price"), a fraction (rounded upward or downward to
the nearest 1/10,000th or, if
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there is not a nearest 1/10,000th, to the next lower 1/10,000th) equal to the
Initial Price divided by the Average Market Price; (ii) if the Average Market
Price is equal to or greater than the Appreciation Threshold Price, _______ and
(iii) if the Average Market Price is less than the Initial Price, 1.
1.2 Purchase Price. (a) Firm Purchase Price. The purchase price for
the Firm Shares (the "Firm Purchase Price") shall be $_________________ in cash.
(b) Additional Purchase Price. The purchase price for the Additional
Shares (the "Additional Purchase Price") shall be an amount equal to (i) the
difference between (1) the aggregate proceeds to Purchaser from the sale of the
Optional Securities and (2) the aggregate cost to Purchaser, as notified by
Purchaser to Seller at the Second Time of Delivery, of the Additional STRIPS,
multiplied by (ii) a fraction, the numerator of which is the Firm Share Base
Amount and the denominator of which is the number of Firm Securities.
1.3 Payment for and Delivery of Contract Shares. (a) First Time of
Delivery. Upon the terms and subject to the conditions of this Agreement,
Purchaser shall deliver to Seller the Firm Purchase Price on May __, 1998 (the
"First Time of Delivery") at the offices of Sullivan & Cromwell, 125 Broad
Street, New York, New York 10004, or at such other place as shall be agreed upon
by Purchaser and Seller, paid by wire transfer to an account designated by
Seller, in Federal (immediately available) funds.
(b) Second Time of Delivery. Upon the terms and subject to the
conditions of this Agreement, Purchaser shall deliver to Seller the Additional
Purchase Price at the Second Time of Delivery at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004, or at such other place as
shall be agreed upon by Purchaser and Seller, paid by wire transfer to an
account designated by Seller, in Federal (immediately available) funds.
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(c) Sale and Delivery of Contract Shares. On the Exchange Date,
Seller agrees to sell and deliver the Contract Shares to Purchaser. Sale and
delivery shall be effected by delivery by the Collateral Agent to the Custodian,
for the account of Purchaser, of shares of Common Stock then held by the
Collateral Agent as collateral under the Collateral Agreement, in an amount
equal to the number of Contract Shares, rounded down to the nearest whole
number. Instead of any fractional shares of Common Stock that would otherwise be
deliverable to Purchaser at the Exchange Date, Seller agrees to make a cash
payment in respect of such fractional shares of Common Stock in an amount equal
to the value thereof at the Average Market Price. Notwithstanding the foregoing,
if a Reorganization Event shall have occurred prior to the Exchange Date then,
in lieu of the foregoing, delivery shall be effected as follows: (i) in the case
of any cash required to be delivered on the Exchange Date as provided in Section
6.2, by wire transfer of immediately available funds to an account designated by
Purchaser; or (ii) in the case of any Marketable Securities elected by Seller to
be delivered in lieu of cash as provided in Section 6.2, at Seller's election,
by instruction to the Collateral Agent to deliver to the Custodian, for the
account of Purchaser, a specified number of Marketable Securities then held as
collateral under the Collateral Agreement, as provided in Section 6(g) of the
Collateral Agreement.
(d) Cash Settlement Alternative. At its option, Seller may deliver
to Purchaser on the Exchange Date, in lieu of the Contract Shares, an amount in
cash equal to the Average Market Price of the Contract Shares (the "Cash
Settlement Alternative"), paid by wire transfer to an account designated by
Custodian, in Federal (immediately available) funds; provided that in connection
with a Rollover Offering which is consummated and as to which Seller has duly
elected the Cash Settlement Alternative, such cash payment shall be made not
later than the fifth Trading Day after the Exchange Date. Seller may request the
Cash Settlement Alternative in respect of all, but not less than all, Contract
Shares and may do so by notice to Purchaser, the Collateral Agent and the
Custodian not less
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than 35 days prior to the Exchange Date (specifying whether such cash settlement
is being made in connection with a Rollover Offering). If Seller elects the Cash
Settlement Alternative and so notifies Purchaser, Purchaser shall provide notice
of such election (specifying whether such cash settlement is being made in
connection with a Rollover Offering) to the holders of the Securities, not less
than thirty (30) nor more than ninety (90) days prior to the Exchange Date.
(e) Extension of Exchange Date. At its option, Seller may, by notice
given to Purchaser not earlier than March __, 2001 and not later than April __,
2001, elect to extend the Exchange Date to August __, 2001, provided that such
extension shall be effective only if [(A) all other sellers that have entered
into purchase agreements with the Trust elect to extend such purchase agreements
to August __, 2001 and (B)] Seller shall have:
(i) delivered to the Custodian, for the account of and subject to
the exclusive control of Purchaser, free of any adverse claims, U.S.
Government Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide, not later than one
Business Day before August __, 2001, money in an amount equal to not less
than the product of (1) $______ and (2) a fraction, the numerator of which
is the sum of the Firm Share Base Amount and the Additional Share Base
Amount and the denominator of which is the number of Firm Securities; and
(ii) delivered to Purchaser (1) a certificate of Seller
substantially in the form of Exhibit A hereto and dated the date of such
delivery (A) identifying the U.S. Government Securities being transferred,
(B) certifying that with respect to such U.S. Government Securities the
representations and warranties contained in such Exhibit A hereto are true
and correct on and as of the date thereof and (C) certifying that such
U.S. Government Securities satisfy the condition set forth in paragraph
1.3(e)(i), and (2) an opinion, dated the date of such delivery, of counsel
addressed to
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Purchaser confirming the representations contained in the second sentence
of paragraph 2(c) to Exhibit A hereto.
In addition, Seller hereby covenants and agrees to take all other actions
necessary to cause Purchaser to be a protected purchaser of such U.S. Government
Securities, within the meaning of Article 8 of the New York Uniform Commercial
Code, as amended.
If Seller elects to extend the Exchange Date and so notifies
Purchaser, Purchaser shall provide notice of such election to the holders of the
Securities not later than April __, 2001.
(f) Acceleration of Exchange Date. At any time after the Exchange
Date has been extended pursuant to Section 1.3(e) hereof, Seller may, at its
option in connection with the consummation of a Rollover Offering, accelerate
the Exchange Date to any date on or after May __, 2001, by notice to Purchaser
not later than ____ a.m. on the date to which the Exchange Date is accelerated;
provided that such acceleration shall be effective only if [(A) all other
sellers that have entered into purchase agreements with the Trust elect to
accelerate such purchase agreements to the same date and (B)] at or prior to ___
a.m. on such accelerated Exchange Date, Seller has paid to Purchaser, by wire
transfer to an account designated by Custodian, in Federal (immediately
available) funds, an amount equal to the product of (i) the aggregate accrued
and unpaid quarterly distributions on all outstanding Securities (computed on
the basis of an aggregate quarterly distribution of $______ and a 360-day year
comprised of 12 30-day months) and (ii) a fraction, the numerator of which is
the sum of the Firm Share Base Amount and the Additional Share Base Amount and
the denominator of which is the number of Firm Securities. Upon receipt of such
amount in immediately available funds, Purchaser shall promptly deliver to
Seller, free of any adverse claim, the U.S. Government Securities previously
delivered by Seller to Purchaser pursuant to Section 1.3(e) (together with any
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payments theretofore received by Purchaser in respect thereof).
If Seller elects to accelerate the Exchange Date and so notifies
Purchaser, Purchaser shall provide notice of such election to the holders of the
Securities not later than the accelerated Exchange Date.
(g) Satisfaction of Obligations. Notwithstanding any other provision
of this Article I, if on or prior to the Exchange Date, Seller transfers
Securities (any Securities so transferred being hereinafter referred to as the
"Transferred Securities") to Purchaser, free and clear of any adverse claim, for
cancellation, then the number of Contract Shares deliverable by Seller pursuant
to this Agreement shall be reduced by a number equal to the product of (i) the
number of Contract Shares and (ii) a fraction, the numerator of which is the
number of Transferred Securities and the denominator of which is the sum of the
Firm Share Base Amount and the Additional Share Base Amount.
II.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser that each representation
and warranty made by Seller pursuant to Section 1(b) of the Underwriting
Agreement is true and correct on the date hereof.
III.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller that each representation
and warranty made by Purchaser pursuant to Section 1(a) of the Underwriting
Agreement is true and correct on the date hereof.
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IV.
CONDITIONS TO PURCHASER'S OBLIGATIONS
(a) The obligation of Purchaser to deliver the Firm Purchase Price
at the First Time of Delivery is subject to the condition that the purchase by
the Underwriters of the Firm Securities pursuant to the Underwriting Agreement
shall have been consummated as contemplated under the Underwriting Agreement.
(b) The obligation of Purchaser to deliver the Additional Purchase
Price at the Second Time of Delivery is subject to the condition that the
purchase by the Underwriters of the Optional Securities shall have been
consummated as contemplated under the Underwriting Agreement.
V.
COVENANTS
5.1 Taxes. Seller shall pay any and all documentary, stamp, transfer
or similar taxes and charges that may be payable in respect of the entry into
this Agreement and the transfer and delivery of the Contract Shares pursuant
hereto.
5.2 Forward Contract. Seller hereby agrees that: (i) it will not
treat this Agreement, any portion of this Agreement, or any obligation hereunder
as giving rise to any interest income or other inclusions of ordinary income;
(ii) it will not treat the delivery of any portion of the Contract Shares, cash
or Marketable Securities to be delivered pursuant to this Agreement as the
payment of interest or ordinary income; (iii) it will treat this Agreement in
its entirety as a forward contract for the delivery of such Contract Shares,
cash or Marketable Securities; and (iv) it will not take any action (including
filing any tax return or form or taking any position in any tax proceeding) that
is inconsistent with the obligations
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contained in clause (i) through (iii). Notwithstanding the preceding sentence,
Seller may take any action or position required by law, provided that Seller
delivers to Purchaser an unqualified opinion of counsel, nationally recognized
as expert in Federal tax matters, to the effect that such action or position is
required by a statutory change, Treasury regulation, or applicable court
decision published after the date of this Agreement.
5.3 Limitations on Trading During Certain Days. Seller hereby agrees
that it will not buy shares of Common Stock for its own account during the 60
days prior to the Exchange Date.
5.4 Notices. Seller will cause to be delivered to Purchaser:
(a) Immediately upon the occurrence of any Event of Default
hereunder or under the Collateral Agreement, or upon Seller's obtaining
knowledge that any of the conditions or events described in paragraph (a) or (b)
of Article VII shall have occurred with respect to the Company, notice of such
occurrence; and
(b) In case at any time prior to the Exchange Date Seller receives
notice, or otherwise obtains knowledge, that any event requiring that an
adjustment be effected pursuant to Article VI hereof shall have occurred or be
pending, then Seller shall promptly cause to be delivered to Purchaser a notice
identifying such event and stating, if known to Seller, the date on which such
event is to occur and, if applicable, the record date relating to such event.
Seller shall cause further notices to be delivered to Purchaser if Seller shall
subsequently receive notice, or otherwise obtain knowledge, of any further or
revised information regarding the terms or timing of such event or any record
date relating thereto.
5.5 Further Assurances. From time to time on and after the date
hereof through the Exchange Date, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all action and to do, or
cause
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to be done, all things necessary, proper and advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement in accordance with the terms and conditions hereof, including (i)
using reasonable best efforts to remove any legal impediment to the consummation
of such transactions and (ii) the execution and delivery of all such deeds,
agreements, assignments and further instruments of transfer and conveyance
necessary, proper or advisable to consummate and make effective the transactions
contemplated by the Agreement in accordance with the terms and conditions
hereof.
VI.
ADJUSTMENT OF EXCHANGE RATE, APPRECIATION THRESHOLD PRICE,
INITIAL PRICE AND CLOSING PRICE
6.1 Dilution Adjustments. The Exchange Rate, Appreciation Threshold
Price and Initial Price shall be subject to adjustment from time to time as
follows:
(a) Stock Dividends, Splits, Reclassifications, Etc. If the Company
shall, after the date hereof,
(i) pay a stock dividend or make a distribution with respect to the
Common Stock in shares of such stock;
(ii) subdivide or split the outstanding shares of Common Stock into
a greater number of shares of Common Stock;
(iii) combine the outstanding shares of Common Stock into a smaller
number of shares; or
(iv) issue by reclassification of shares of its Common Stock any
shares of other common stock of the Company;
then, in each such case, the Exchange Rate shall be multiplied by a Dilution
Adjustment equal to the number of
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shares of Common Stock (or in the case of a reclassification referred to in
clause (iv) above, the number of shares of other common stock of the Company
issued pursuant thereto), or the fraction thereof, that a holder who held one
share of Common Stock immediately prior to such event would be entitled solely
by reason of such event to hold immediately after such event. The Appreciation
Threshold Price and Initial Price shall also be adjusted in the manner described
in paragraph (e).
(b) Right or Warrant Issuances. If the Company shall, after the date
hereof, issue, or declare a record date in respect of an issuance of, rights or
warrants to all holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Then-Current
Market Price of the Common Stock (other than rights to purchase Common Stock
pursuant to a plan for the reinvestment of dividends or interest), then, in each
such case, the Exchange Rate shall be multiplied by a Dilution Adjustment equal
to a fraction of which the numerator shall be the number of shares of Common
Stock outstanding immediately prior to the time the adjustment is effected by
reason of the issuance of such rights or warrants, plus the number of additional
shares of Common Stock offered for subscription or purchase pursuant to such
rights or warrants, and of which the denominator shall be the number of shares
of Common Stock outstanding immediately prior to the time the adjustment is
effected, plus the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered for subscription or purchase pursuant to such rights or warrants would
purchase at the Then-Current Market Price of the Common Stock, which shall be
determined by multiplying the total number of shares so offered for subscription
or purchase by the exercise price of such rights or warrants and dividing the
product so obtained by such Then-Current Market Price. To the extent that, after
the expiration of such rights or warrants, the shares of Common Stock offered
thereby shall not have been delivered, the Exchange Rate shall be further
adjusted to equal the Exchange Rate which would have been in effect had such
adjustment for the issuance of such rights or warrants
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been made upon the basis of delivery of only the number of shares of Common
Stock actually delivered. The Appreciation Threshold Price and Initial Price
shall also be adjusted in the manner described in paragraph (e).
(c) Distributions of Other Assets. If the Company shall, after the
date hereof, declare or pay a dividend or make a distribution to all holders of
Common Stock, in either case, of evidences of its indebtedness or other non-cash
assets (excluding any dividends or distributions referred to in paragraph (a)
above) or shall issue to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its securities (other than rights or warrants
referred to in paragraph (b) above), then, in each such case, the Exchange Rate
shall be multiplied by a Dilution Adjustment equal to a fraction, of which the
numerator shall be the Then-Current Market Price per share of the Common Stock,
and of which the denominator shall be such Then-Current Market Price per share
less the fair market value (as determined by a nationally recognized independent
investment banking firm retained for this purpose by the Administrator) as of
the time the adjustment is effected of the portion of the assets or evidences of
indebtedness so distributed or of such subscription rights or warrants
applicable to one share of Common Stock. The Appreciation Threshold Price and
Initial Price shall also be adjusted in the manner described in subparagraph
(e).
(d) Cash Dividends; Excess Purchase Payments. If the Company shall,
after the date hereof, declare a record date in respect of a distribution of
cash (other than any Permitted Dividend, any cash distributed in consideration
of fractional shares of Common Stock and any cash distributed in a
Reorganization Event), by dividend or otherwise, to all holders of Common Stock,
or make an Excess Purchase Payment, then the Exchange Rate will be multiplied by
a Dilution Adjustment equal to a fraction, of which the numerator shall be the
Then-Current Market Price of the Common Stock on such record date, and of which
the denominator shall be such Then-Current Market Price less the amount of such
distribution applicable to one share of Common Stock which would not be a
Permitted Dividend (or in the case of an
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Excess Purchase Payment, less the aggregate amount of such Excess Purchase
Payment for which adjustment is being made at such time divided by the number of
shares of Common Stock outstanding on such record date). For purposes of these
adjustments, (A) "Permitted Dividend" means any quarterly cash dividend in
respect of the Common Stock, other than a quarterly cash dividend that exceeds
the immediately preceding quarterly cash dividend, and then only to the extent
that the per share amount of such dividend results in an annualized dividend
yield on the Common Stock in excess of _______% and (B) "Excess Purchase
Payment" means the excess, if any, of (x) the cash and the value (as determined
by a nationally recognized independent investment banking firm retained for this
purpose by the Administrator, whose determination shall be final) of all other
consideration paid by the Company with respect to one share of Common Stock
acquired in a tender offer or exchange offer by the Company, over (y) the
Then-Current Market Price of the Common Stock. The Appreciation Threshold Price
and Initial Price shall also be adjusted in the manner described in subparagraph
(e).
(e) Corresponding Adjustments to Initial Price, Appreciation
Threshold Price and Closing Price; Change in Principal Market. (i) If any
adjustment is made to the Exchange Rate pursuant to paragraph (a), (b), (c) or
(d) of this Section 6.1, an adjustment shall also be made to the Appreciation
Threshold Price and the Initial Price. The required adjustment shall be made by
dividing each of the Appreciation Threshold Price and the Initial Price by the
relevant Dilution Adjustment.
(ii) If, during any Calculation Period used in calculating the
Average Market Price, the Then-Current Market Price or the Transaction Value,
there shall occur any event requiring an adjustment to be effected pursuant to
this Section 6.1, then the Closing Price for each Trading Day in the Calculation
Period occurring prior to the day on which such adjustment is effected shall be
adjusted by being divided by the relevant Dilution Adjustment.
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(f) Timing of Dilution Adjustments. Each Dilution Adjustment shall
be effected:
(i) in the case of any dividend, distribution or issuance, at the
opening of business on the Business Day next following the record date for
determination of holders of Common Stock entitled to receive such
dividend, distribution or issuance or, if the announcement of any such
dividend, distribution or issuance is after such record date, at the time
such dividend, distribution or issuance shall be announced by the Company;
(ii) in the case of any subdivision, split, combination or
reclassification, on the effective date of such transaction;
(iii) in the case of any Excess Purchase Payment for which the
Company shall announce, at or prior to the time it commences the relevant
share repurchase, the repurchase price per share for shares proposed to be
repurchased, on the date of such announcement; and
(iv) in the case of any other Excess Purchase Payment, on the date
that the holders of the repurchased shares become entitled to payment in
respect thereof.
(g) General; Failure of Dilution Event to Occur. All Dilution
Adjustments shall be rounded upward or downward to the nearest 1/10,000th (or if
there is not a nearest 1/10,000th, to the next lower 1/10,000th). No adjustment
in the Exchange Rate shall be required unless such adjustment would require an
increase or decrease of at least one percent therein; provided, however, that
any adjustments which by reason of this sentence are not required to be made
shall be carried forward and taken into account in any subsequent adjustment. If
any announcement or declaration of a record date in respect of a dividend,
distribution, issuance or
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repurchase requiring an adjustment pursuant to this Section 6.1
shall subsequently be cancelled by the Company, or such dividend, distribution,
issuance or repurchase shall fail to receive requisite approvals or shall fail
to occur for any other reason, then, upon such cancellation, failure of approval
or failure to occur, the Exchange Rate shall be further adjusted to the Exchange
Rate which would then have been in effect had adjustment for such event not been
made. If after an announcement of a share repurchase requiring an adjustment
pursuant to this Section 6.1, the Company reduces the repurchase price or
repurchases fewer shares than announced, then upon completion of such share
repurchase the Exchange Rate shall be further adjusted to equal the Exchange
Rate that would have been in effect had the adjustment for such repurchase been
based on the actual price and amount repurchased. If a Reorganization Event
shall occur after the occurrence of one or more events requiring an adjustment
pursuant to this Section 6.1, the Dilution Adjustments previously applied to the
Exchange Rate in respect of such events shall not be rescinded but shall be
applied to the new Exchange Rate provided for under Section 6.2.
6.2 Adjustment for Consolidation, Merger or Other Reorganization
Event. In the event of (i) any consolidation or merger of the Company, or any
surviving entity or subsequent surviving entity of the Company (a "Company
Successor"), with or into another entity (other than a merger or consolidation
in which the Company is the continuing corporation and in which the Common Stock
outstanding immediately prior to the merger or consolidation is not exchanged
for cash, securities or other property of the Company or another corporation),
(ii) any sale, transfer, lease or conveyance to another corporation of the
property of the Company or any Company Successor as an entirety or substantially
as an entirety, (iii) any statutory exchange of securities of the Company or any
Company Successor with another corporation (other than in connection with a
merger or acquisition) or (iv) any liquidation, dissolution or winding up of the
Company or any Company Successor (any such event described in clause (i), (ii),
(iii) or (iv), a "Reorganization Event"), the Exchange Rate shall be adjusted so
that on the Exchange Date Purchaser shall receive, in lieu of the Contract
Shares, cash in an amount equal to the product of (x) the Firm Share
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<PAGE> 21
Base Amount plus the Additional Share Base Amount and (y)(i) if the Transaction
Value is less than the Appreciation Threshold Price but equal to or greater than
the Initial Price, the Initial Price, (ii) if the Transaction Value is equal to
or greater than the Appreciation Threshold Price, 0.______ multiplied by the
Transaction Value, and (iii) if the Transaction Value is less than the Initial
Price, the Transaction Value. Notwithstanding the foregoing, (A) if the
consideration received by holders of Common Stock in such Reorganization Event
does not include Marketable Securities, then the Seller's delivery obligation
under this Agreement will be accelerated, and the Seller will deliver the
Transaction Value to Purchaser promptly upon consummation of the Reorganization
Event; and (B) if any Marketable Securities are received by holders of Common
Stock in such Reorganization Event, Seller may, at its option, in lieu of
delivering cash as described above, deliver an equivalent amount (based on the
value determined in accordance with clause (z) of the following paragraph) of
Marketable Securities, but not exceeding, as a percentage of the total
consideration required to be delivered, the percentage of the total Transaction
Value attributable to such Marketable Securities.
"Transaction Value" means the sum of: (x) for any cash received in
any such Reorganization Event, the amount of cash received per share of Common
Stock; (y) for any property other than cash or Marketable Securities received in
any such Reorganization Event, an amount equal to the market value on the date
the Reorganization Event is consummated of such property received per share of
Common Stock, as determined by a nationally recognized independent investment
banking firm retained for this purpose by the Administrator; and (z) for any
Marketable Securities received in any such Reorganization Event, an amount equal
to the average Closing Price per share of such Marketable Securities for the
Calculation Period of 20 Trading Days immediately prior to the Exchange Date
multiplied by the number of such Marketable Securities received for each share
of Common Stock; provided that if no Closing Price for such Marketable
Securities may be determined for one or more (but
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<PAGE> 22
not all) of such Trading Days, such Trading Day shall be disregarded in the
calculation of such average Closing Price (but no additional Trading Days shall
be added to the Calculation Period). If no Closing Price for the Marketable
Securities may be determined for all such Trading Days, the calculation in the
preceding clause (z) shall be based on the most recently available Closing Price
for the Marketable Securities prior to such 20 Trading Days.
"Marketable Securities" means any common equity securities listed on
a U.S. national securities exchange or reported by The Nasdaq National Market.
The number of shares of any Marketable Securities included in the calculation of
Transaction Value pursuant to the preceding clause (z) shall be subject to
adjustment if any event that would, had it occurred with respect to the Common
Stock or the Company, have required an adjustment pursuant to Section 6.1, shall
occur with respect to such Marketable Securities or the issuer thereof between
the time of the Reorganization Event and the Exchange Date. Adjustment for such
subsequent events shall be as nearly equivalent as practicable to the
adjustments provided for in Section 6.1.
VII.
ACCELERATION
If one or more of the following events (each an "Event of Default")
shall occur:
(a) Seller shall commence a voluntary case or other proceeding
seeking a liquidation, reorganization or other relief with respect to itself or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall take any action to authorize any of the
foregoing;
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<PAGE> 23
(b) an involuntary case or other proceeding shall be commenced
against the Seller seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days; or an order for relief shall
be entered against the Seller under the federal bankruptcy laws as now or
hereafter in effect; or
(c) a Collateral Event of Default within the meaning of the
Collateral Agreement;
then, upon the occurrence of any such event, Seller shall become obligated to
deliver the Contract Shares (or, after a Reorganization Event, the Marketable
Securities or cash or combination thereof deliverable in respect thereof), or
any U.S. Government Securities then pledged under the Collateral Agreement in
respect thereof. Purchaser and Seller agree that such amount is a reasonable
pre-estimate of loss and not a penalty. Such amount is payable for the loss of
bargain and Purchaser will not be entitled to recover additional damages as a
consequence of loss resulting from an Event of Default.
VIII.
MISCELLANEOUS
8.1 Adjustments of Exchange Rate; Selection of Independent
Investment Banking Firm. Purchaser shall be responsible for the effectuation and
calculation of any adjustment pursuant to Article VI hereof and shall furnish
Seller notice of any such adjustment and shall provide Seller reasonable
opportunity to review the calculations pertaining to any such adjustment. If,
pursuant to the terms and conditions hereof, the Administrator shall be required
to retain a nationally recognized independent investment banking firm for any
purpose provided herein, such nationally recognized independent
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<PAGE> 24
investment banking firm shall be selected and retained by the Administrator only
after consultation with Seller.
8.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard forms of telecommunication. Notices to Purchaser shall be
directed to it in care of the Administrator for Purchaser, ____________________,
at _____________________________________________, Telecopy No. _____________,
attention _________________; notices to Seller shall be directed to it at
_______________________________, Telecopy No._________________.
8.3 Governing Law; Severability. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York. To the
extent permitted by law, the unenforceability or invalidity of any provision or
provisions of this Agreement shall not render any other provision or provisions
herein contained unenforceable or invalid.
8.4 Entire Agreement. Except as expressly set forth herein, this
Agreement constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements, understandings and
negotiations, both written and oral, among the parties with respect to the
subject matter of this Agreement.
8.5 Amendments; Waivers. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by Purchaser and Seller or, in the case of
a waiver, by the party against whom the waiver is to be effective. No failure or
delay by either 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
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<PAGE> 25
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.
8.6 No Third Party Rights; Successors and Assigns. This Agreement is
not intended and shall not be construed to create any rights in any person other
than Seller and Purchaser and their respective successors and assigns and no
person shall assert any rights as third party beneficiary hereunder. Whenever
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party. All the covenants and
agreements herein contained by or on behalf of the Seller and Purchaser shall
bind, and inure to the benefit of, their respective successors and assigns
whether so expressed or not, and shall be enforceable by and inure to the
benefit of Purchaser and its successors and assigns.
8.7 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
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<PAGE> 26
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
SELLER:
-----------------------------------
PURCHASER:
______________________, as trustee,
______________________, as trustee,
______________________, as trustee,
each as trustee of CVS Automatic
Common Exchange Security Trust
<PAGE> 27
Exhibit A
to
Purchase Agreement
CERTIFICATE FOR EXTENSION OF EXCHANGE DATE
The undersigned, ___________________ ("Seller), hereby certifies,
pursuant to Section 1.3(e) of the Purchase Agreement, dated as of May __, 1998,
among Seller and CVS AUTOMATIC COMMON EXCHANGE SECURITY TRUST (the "Purchase
Agreement"; terms defined in the Purchase Agreement being used herein as defined
therein), that:
1. Seller is transferring the following U.S. Government Securities
to Purchaser:
2. Seller hereby represents and warrants to Purchaser that:
(a) Consents to Transfer. No Transfer Restrictions exist with
respect to or otherwise apply to the transfer by Seller of such U.S. Government
Securities to Purchaser.
(b) Delivery. Seller has delivered to the Custodian, for the account
of and subject to the exclusive control of Purchaser, free of any adverse
claims, U.S. Government Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide, not later
than one Business Day before August __, 2001, money in an amount equal to not
less than the product of (1) $______ and (2) a fraction, the numerator of which
is the sum of the Firm Share Base Amount and the Additional Share Base Amount
and the denominator of which is the number of Firm Securities.
(c) Title. Seller has good and marketable title to such U.S.
Government Securities, free of all Liens and Transfer Restrictions. Upon
delivery of such U.S. Government Securities to Purchaser, Purchaser will obtain
good and marketable title to such U.S. Government Securities free of any adverse
claims.
IN WITNESS WHEREOF, the undersigned has executed this certificate
this ____ day of ____________, _____.
<PAGE> 28
--------------------------------
Name:
Title:
<PAGE> 1
Exhibit 2.k(iv)
COLLATERAL AGREEMENT
Among
---------------------,
As Pledgor,
_________________, As Collateral Agent
and
CVS AUTOMATIC COMMON EXCHANGE SECURITY TRUST
Dated as of
May __, 1998
<PAGE> 2
The following Table of Contents has been inserted for convenience of
reference only and does not constitute a part of the Collateral Agreement.
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. The Security Interests......................................... 1
2. Definitions.................................................... 2
3. Representations and Warranties of the Pledgor.................. 6
4. Representations and Warranties of the Collateral
Agent.......................................................... 7
5. Certain Covenants of the Pledgor............................... 7
6. Administration of the Collateral and Valuation of
the Securities................................................. 8
7. Income and Voting Rights on Collateral......................... 14
8. Remedies upon Events of Default................................ 15
9. The Collateral Agent........................................... 18
10. Miscellaneous.................................................. 21
11. Termination of Collateral Agreement............................ 22
12. No Personal Liability of Trustees.............................. 22
Exhibit A - Certificate for Substituted Collateral
Exhibit B - Certificate for Additional Collateral
<PAGE> 3
COLLATERAL AGREEMENT
THIS COLLATERAL AGREEMENT (the "Agreement"), dated as of May __,
1998, among _____________________ (the "Pledgor"), _______________, a
______________ corporation, as collateral agent (the "Collateral Agent")
hereunder for the benefit of CVS Automatic Common Exchange Security Trust, a
trust duly created under the laws of the State of New York (such trust and the
trustees thereof acting in their capacity as such being referred to herein as
the "Trust" or "Purchaser");
WITNESSETH:
WHEREAS, pursuant to the Purchase Agreement (the "Purchase
Agreement"), dated as of May __, 1998, between the Pledgor and Purchaser, the
Pledgor has agreed to sell and Purchaser has agreed to purchase Common Stock,
par value $.01 per share (the "Common Stock"), of CVS Corporation, a Delaware
corporation (the "Company"), subject to the terms and conditions of the Purchase
Agreement; and
NOW, THEREFORE, to secure the performance by the Pledgor of its
obligations under the Purchase Agreement and to secure the observance and
performance of the covenants and agreements contained herein and in the Purchase
Agreement, the parties hereto agree as follows:
1. The Security Interests.
In order to secure the observance and performance of the covenants
and agreements contained herein and in the Purchase Agreement:
(a) Security Interests. Effective upon and subject to the receipt by
Pledgor of the Firm Purchase Price at the First Time of Delivery, the Pledgor
hereby grants, sells, conveys, assigns, transfers and pledges unto the
Collateral Agent, as agent of and for the benefit of the Trust, a security
interest in and to, and a lien upon and right of set-off against, all of his
right, title and
<PAGE> 4
interest in and to (i) the Pledged Items described in paragraphs (b) and (c);
(ii) all additions to and substitutions for such Pledged Items; (iii) all
income, proceeds and collections received or to be received, or derived or to be
derived, now or any time hereafter from or in connection with the Pledged Items;
and (iv) all powers and rights now owned or hereafter acquired under or with
respect to the Pledged Items (such Pledged Items, additions, substitutions,
proceeds, collections, powers and rights being herein collectively called the
"Collateral"). The Collateral Agent shall have all of the rights, remedies and
recourses with respect to the Collateral afforded a secured party by the New
York Uniform Commercial Code, in addition to, and not in limitation of, the
other rights, remedies and recourses afforded to the Collateral Agent by this
Agreement.
(b) First Time of Delivery. At the First Time of Delivery, the
Pledgor shall either (1) deliver to the Collateral Agent in pledge hereunder one
or more certificates in registered form representing in the aggregate __________
shares of the Common Stock, together with undated stock powers with respect
thereto duly endorsed in blank, or (2) if such shares of Common Stock are not
held in certificated form but are held in book entry form by The Depository
Trust Company or other comparable depositary, transfer such shares of Common
Stock to an account of the Collateral Agent with the Depositary Trust Company or
such other depositary, as applicable.
(c) Second Time of Delivery. Effective upon and subject to the
receipt by the Pledgor of the Additional Purchase Price, at the Second Time of
Delivery, the Pledgor shall either (1) deliver to the Collateral Agent in pledge
hereunder one or more certificates in registered form representing in the
aggregate Common Stock representing the Additional Share Base Amount of Common
Stock, together with undated stock powers with respect thereto duly endorsed in
blank, or (2) if such shares of Common Stock are not held in certificated form
but are held in book entry form by The Depository Trust Company or other
comparable depositary, transfer such number of shares of Common Stock
representing the Additional Share Base Amount of Common Stock to an account of
the Collateral Agent or to an account (other than
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<PAGE> 5
an account of the Pledgor) designated by the Collateral Agent with the
Depositary Trust Company or such other depositary, as applicable.
2. Definitions.
Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Purchase Agreement. Capitalized terms used
herein shall have the meanings as follows:
"Authorized Representative" of the Pledgor means any trustee or
other representative as to whom Pledgor shall have delivered notice to the
Collateral Agent that such trustee or other representative is authorized to act
hereunder on behalf of Pledgor.
"Business Day" means any day except a Saturday, Sunday or other day
on which banking institutions in New York City are authorized or obligated by
law or regulation to close or a day on which the New York Stock Exchange, Inc.
is closed.
"Cash Delivery Obligations" means, at any time (A) if no
Reorganization Event shall have occurred prior to such time, zero, and (B) from
and after any Reorganization Event, the Dilution Adjustment (or successive
dilution adjustments) that shall have been applied to the Exchange Rate pursuant
to Section 6.1 of the Purchase Agreement at or prior to the Reorganization
Event, times the product of: (i) the Firm Share Base Amount plus the Additional
Share Base Amount (if any); and (ii) the Transaction Value of any property other
than Marketable Securities received by the Pledgor in such Reorganization Event.
"Collateral" has the meaning specified in Section 1(a).
"Collateral Agent" means the financial institution identified as
such in the preliminary paragraph hereof, or any successor appointed in
accordance with Section 9.
"Collateral Agreement" means this Collateral Agreement and any
exhibits hereto.
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<PAGE> 6
"Collateral Event of Default" has the meaning specified in Section
6(e).
"Collateral Requirement" means, as of any date and with respect to:
(i) any Common Stock, 100%; (ii) any Marketable Securities, 100%; (iii) any U.S.
Government Securities pledged in respect of Cash Delivery Obligations, 105%; and
(iv) any other U.S. Government Securities, an aggregate market value at the time
of substitution and daily mark-to-market valuations thereafter of not less than
150%, provided that upon and after any failure to cure an Insufficiency
Determination by 4:00 p.m. New York City time on the next Business Day following
telephonic notice of such Insufficiency Determination as described in Section
6(e), which insufficiency shall be continuing on such next business day, the
Collateral Requirement relating to any U.S. Government Securities shall be 200%.
The portion of any pledged U.S. Government Securities that shall be deemed at
any time to be in respect of Cash Delivery Obligations shall be as provided in
Section 6(e).
"Distribution Date" has the meaning specified in the Trust
Agreement.
"Eligible Collateral" means (i) Common Stock, (ii) U.S. Government
Securities, and (iii) from and after any Reorganization Event, Marketable
Securities, provided, in each case, that the Pledgor has good and marketable
title thereto, free of all Liens (other than the Liens created by this
Collateral Agreement) and Transfer Restrictions and that the Collateral Agent
has a valid, first priority perfected security interest therein and first lien
thereon, and provided further that to the extent the number of shares of
Marketable Securities pledged hereunder exceeds at any time the Maximum
Deliverable Number thereof, such excess shares shall not be Eligible Collateral.
"Event of Default" means the occurrence of: (i) an event described
in clause (a) or (b) of Article VII of the Purchase Agreement, (ii) a Collateral
Event of Default, (iii) a failure by Pledgor to have caused the Collateral to
meet the requirements described in Section 5(d) on the Exchange Date or (iv) if
a Reorganization Event shall have occurred prior to the Exchange Date, failure
by Pledgor to
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<PAGE> 7
cause to be delivered to Purchaser on the Exchange Date the consideration then
required to be delivered pursuant to Section 6.2 of the Purchase Agreement.
"Ineligible Collateral" means Collateral that does not constitute
"Eligible Collateral".
"Lien" means any lien, mortgage, security interest, pledge, charge
or encumbrance of any kind.
"Market Value" means, as of any date: (a) with respect to any Common
Stock (except as otherwise provided in Section 6(e)(2)), the Closing Price on
such date; (b) with respect to any U.S. Government Security, the product of
(x)(i) the average unit bid price for such security as published on the Trading
Day prior to such date in the New York edition of The Wall Street Journal or The
New York Times or, if not so published, (ii) the lower bid price quoted (which
quotation shall be evidenced in writing) on the Trading Day prior to such date
by either of two nationally recognized dealers making a market in such security
which are members of the National Association of Securities Dealers, Inc. and
(y) the number of such units comprised in the outstanding principal amount of
such security; and (c) with respect to any share of Marketable Securities, the
Closing Price thereof on the Trading Day prior to such date; provided that the
"Market Value" of any Ineligible Collateral shall be zero.
"Maximum Deliverable Number" means, on any date, with respect to the
Common Stock, the product of the Firm Share Base Amount plus the Additional
Share Base Amount (if any), multiplied successively by each number by which the
Exchange Rate shall have been multiplied on or prior to such date pursuant to
the adjustments provided for under Section 6.1 of the Purchase Agreement. The
Maximum Deliverable Number of Marketable Securities means, on any date, the
product of (i) the Firm Share Base Amount plus the Additional Share Base Amount
(if any) and (ii) the number of Marketable Securities received by the Pledgor in
the Reorganization Event for each share of Common Stock, multiplied successively
by each number by which the Exchange Rate shall have been multiplied on or prior
to such date and after the date of such Reorganization Event pursuant to the
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<PAGE> 8
adjustments provided for under Article VI of the Purchase Agreement.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or an agency or instrumentality thereof.
"Pledge Value" means, as of any date and with respect to any
particular type of Collateral, an amount equal to the aggregate Market Value of
such Collateral divided by the Collateral Requirement for such Collateral.
"Pledge Value Requirement" means, as of any date, (a) the aggregate
Market Value on such date of the Maximum Deliverable Number of shares of Common
Stock on such date or, from and after a Reorganization Event, Marketable
Securities, plus (b) from and after a Reorganization Event, the Cash Delivery
Obligations.
"Pledged Items" means, as of any date, any and all securities and
instruments delivered by the Pledgor to be held by the Collateral Agent under
this Collateral Agreement as Collateral, whether Eligible Collateral or
Ineligible Collateral.
"Prior Collateral" has the meaning specified in Section 6(b)(1).
"Responsible Officer" means, when used with respect to the
Collateral Agent, any vice president, assistant vice president, assistant
treasurer or assistant secretary located in the division or department of the
Collateral Agent responsible for performing the obligations of the Collateral
Agent under this Collateral Agreement, or in any other division or department of
the Collateral Agent performing operations substantially equivalent to those
performed by such division or department pursuant hereto, or any other officer
of the Collateral Agent or any successor Collateral Agent customarily performing
functions similar to those performed by any of the aforesaid officers, and also
means, with respect to any matter relating to this Collateral Agreement or the
Collateral, any other officer to
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<PAGE> 9
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Transfer Restriction" means, with respect to any item of
Collateral, any condition to or restriction on the ability of the holder thereof
to sell, assign or otherwise transfer such item of Collateral or to enforce the
provisions thereof or of any document related thereto whether set forth in such
item of Collateral itself or in any document related thereto, including, without
limitation, (i) any requirement that any sale, assignment or other transfer or
enforcement of such item of Collateral be consented to or approved by any
Person, including, without limitation, the issuer thereof or any other obligor
thereon, (ii) any limitations on the type or status, financial or otherwise, of
any purchaser, pledgee, assignee or transferee of such item of Collateral, (iii)
any requirement of the delivery of any certificate, consent, agreement, opinion
of counsel, notice or any other document of any Person to the issuer of, any
other obligor on or any registrar or transfer agent for, such item of
Collateral, prior to the sale, pledge, assignment or other transfer or
enforcement of such item of Collateral and (iv) any registration or
qualification requirement for such item of Collateral pursuant to any federal or
state securities law that has not been satisfied; provided that the required
delivery of any assignment from the seller, pledgor, assignor or transferor of
such item of Collateral, together with any evidence of the corporate or other
authority of such Person, shall not constitute a "Transfer Restriction."
"Trustee" or "Trustees" means any trustee or trustees of the Trust
identified on the signature pages hereto, or any successor as such trustee or
trustees.
"UCC" means the Uniform Commercial Code as in effect in the State of
New York.
"U.S. Government Securities" means direct obligations of the United
States of America that mature on a date that is one year or less from the date
such obligations are pledged hereunder, but in any event prior to the Exchange
Date.
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<PAGE> 10
3. Representations and Warranties of the Pledgor.
The Pledgor hereby represents and warrants to the Collateral Agent
and the Trust that:
(a) No Transfer Restrictions. [Except for the legend with respect to
restrictions pursuant to applicable federal and state securities laws on
transfer of the Common Stock pledged by the Pledgor hereunder which, as of the
date hereof, appears on the face of the stock certificates representing such
Common Stock,] no Transfer Restrictions exist with respect to or otherwise apply
to the assignment of, or transfer by the Pledgor of possession of, any items of
Collateral to the Collateral Agent hereunder, or the subsequent sale or transfer
of such items of Collateral by the Collateral Agent pursuant to the terms
hereof.
(b) Title to Collateral; Perfected Security Interest. The Pledgor
has good and marketable title to the Pledged Items, free of all Liens (other
than the Lien created by this Collateral Agreement) and Transfer Restrictions.
Upon delivery of the Pledged Items described in paragraphs (b) and (c) of
Section 1 to the Collateral Agent hereunder, the Collateral Agent will obtain a
valid, first priority perfected security interest in, and a first lien upon,
such Pledged Items subject to no other Lien. None of the Collateral is or shall
be pledged by the Pledgor as collateral for any other purpose.
4. Representations and Warranties of the Collateral Agent.
The Collateral Agent represents and warrants to the Pledgor and the
Trust that:
(a) Corporate Existence and Power. The Collateral Agent is a banking
corporation, duly incorporated, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has all corporate powers and
all material governmental licenses, authorizations, consents and approvals
required to enter into, and perform its obligations under, this Collateral
Agreement.
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<PAGE> 11
(b) Authorization and Non-Contravention. The execution, delivery and
performance by the Collateral Agent of this Collateral Agreement have been duly
authorized by all necessary corporate action on the part of the Collateral Agent
(no action by the shareholders of the Collateral Agent being required) and do
not and will not violate, contravene or constitute a default under any provision
of applicable law or regulation or of the charter or by-laws of the Collateral
Agent or of any material agreement, judgment, injunction, order, decree or other
instrument binding upon the Collateral Agent.
(c) Binding Effect. This Collateral Agreement constitutes a valid
and binding agreement of the Collateral Agent enforceable against the Collateral
Agent in accordance with its terms.
5. Certain Covenants of the Pledgor.
The Pledgor agrees that, so long as any of its obligations under the
Purchase Agreement remain outstanding:
(a) Title to Collateral. The Pledgor shall at all times hereafter
have good and marketable title to the Collateral pledged by it, free of all
Liens (other than the Liens created by this Collateral Agreement) and Transfer
Restrictions, and, subject to the terms of this Collateral Agreement, will at
all times hereafter have good, right and lawful authority to assign, transfer
and pledge such Collateral and all such additions thereto and substitutions
therefor under this Collateral Agreement.
(b) Pledge Value Requirement. The Pledgor shall cause the aggregate
Pledge Value of the Collateral to be equal to or greater than the Pledge Value
Requirement at all times, and shall pledge additional Collateral in the manner
described in Section 6(d) as necessary to cause such requirement to be met.
(c) Pledge upon Reorganization Event. Upon the occurrence of a
Reorganization Event, the Pledgor shall immediately cause to be delivered to the
Collateral Agent, in the manner provided in Section 6(d): (i) cash in an amount
equal to 100% of Pledgor's Cash Delivery Obligations
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<PAGE> 12
(or U.S. Government Securities having an aggregate Market Value when pledged and
at daily mark-to-market valuations thereafter at least equal to 105% of the Cash
Delivery Obligations); and (ii) Marketable Securities in an amount at least
equal to the Maximum Deliverable Number thereof, or, at Pledgor's election, U.S.
Government Securities having an aggregate Market Value at least equal to 150% of
such Maximum Deliverable Number of Marketable Securities; in each case to be
held as substitute Collateral hereunder.
(d) Pledge of Purchase Agreement Consideration. Notwithstanding the
Pledgor's right to substitute Collateral pursuant to Section 6(b), the Pledgor
shall cause the Collateral to include, on the Exchange Date, unless a
Reorganization Event shall have occurred, a number of shares of Common Stock at
least equal to the number of shares of Common Stock required to be delivered
under the Purchase Agreement on the Exchange Date.
(e) Further Assurances. The Pledgor shall, at his expense and in
such manner and form as the Trust or the Collateral Agent may reasonably
require, give, execute, deliver, file and record any financing statement,
notice, instrument, document, agreement or other papers that may be necessary or
desirable in order to create, preserve, perfect, substantiate or validate any
security interest granted pursuant hereto or to enable the Collateral Agent to
exercise and enforce its rights and the rights of the Trust hereunder with
respect to such security interest. To the extent permitted by applicable law,
the Pledgor hereby authorizes the Collateral Agent to execute and file, in the
name of the Pledgor or otherwise, UCC financing or continuation statements
(which may be carbon, photographic, photostatic or other reproductions of this
Agreement or of a financing statement relating to this Agreement) which the
Collateral Agent may reasonably deem necessary or appropriate to further
perfect, or maintain the perfection of, the security interests granted hereby.
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6. Administration of the Collateral and Valuation of the Securities.
(a) Valuation of Collateral. The Collateral Agent shall determine at
4:00 p.m., New York City time, on each Business Day whether the Pledge Value is
at least equal to the Pledge Value Requirement and whether an Insufficiency
Determination or Collateral Event of Default shall have occurred and, from and
after any substitution of U.S. Government Securities for pledged Common Stock or
Marketable Securities pursuant to paragraph (b) of this Section 6, shall
determine the Pledge Value on each Business Day and shall provide written notice
of the Pledge Value to the Pledgor.
(b) Substitution of Collateral. The Pledgor may substitute
Collateral in accordance with the following provisions:
(1) Unless an Event of Default or a failure by the Pledgor to meet
any of its obligations under Section 5(b) or (c) hereof has occurred and
is continuing, the Pledgor shall have the right at any time and from time
to time to deposit Eligible Collateral with the Collateral Agent in
substitution for Pledged Items previously deposited hereunder ("Prior
Collateral") and to obtain the release from the Lien hereof of such Prior
Collateral.
(2) If a Pledgor wishes to deposit Eligible Collateral with the
Collateral Agent in substitution for Prior Collateral, he shall (i) give
written notice to the Collateral Agent identifying the Prior Collateral to
be released from the Lien hereof, (ii) deliver to the Collateral Agent
concurrently with such Eligible Collateral a certificate of the Pledgor
substantially in the form of Exhibit A hereto and dated the date of such
delivery, (A) identifying the items of Eligible Collateral being
substituted for the Prior Collateral and the Prior Collateral that is to
be transferred to the Pledgor and (B) certifying that the representations
and warranties contained in such Exhibit A hereto are
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true and correct on and as of the date thereof and (iii) deliver to the
Collateral Agent concurrently with such Eligible Collateral an opinion
(dated the date of such delivery) of counsel addressed to the Collateral
Agent confirming the representations contained in the second sentence of
paragraph 3(b) of Exhibit A hereto. The Pledgor hereby covenants and
agrees to take all actions required under Section 6(d) and any other
actions necessary to create for the benefit of the Collateral Agent a
valid, first priority perfected security interest in, and a first lien
upon, such Eligible Collateral deposited with the Collateral Agent in
substitution for Prior Collateral.
(3) No such substitution shall be made unless and until the
Collateral Agent shall have determined that the aggregate Pledge Value of
all of the Collateral at the time of such proposed substitution, after
giving effect to the proposed substitution, shall at least equal the
Pledge Value Requirement.
(c) Additional Collateral. The Pledgor may pledge additional
Collateral hereunder at any time. Concurrently with the delivery of any
additional Eligible Collateral, the Pledgor shall deliver (i) a certificate of
the Pledgor substantially in the form of Exhibit B hereto and dated the date of
such delivery, (A) identifying the additional items of Eligible Collateral being
pledged and (B) certifying that with respect to such items of additional
Eligible Collateral the representations and warranties contained in such Exhibit
B hereto are true and correct on and as of the date thereof and (ii) an opinion,
dated the date of such delivery, of counsel addressed to the Collateral Agent
confirming the representations contained in the second sentence of paragraph
2(b) of Exhibit B hereto. The Pledgor hereby covenants and agrees to take all
actions required under Section 6(d) and any other actions necessary to create
for the benefit of the Collateral Agent a valid, first priority perfected
security interest in, and a first lien upon, such additional Eligible
Collateral.
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(d) Delivery of Collateral. The Pledgor shall deliver the Collateral
to the Collateral Agent in accordance with the following provisions:
(1) Pledged Common Stock. In the case of Collateral consisting of
Common Stock, by delivery to the Collateral Agent of Common Stock,
registered in the name of the Collateral Agent or its nominee;
(2) Pledged U.S. Government Securities. In the case of Collateral
consisting of U.S. Government Securities, by transfer thereof through the
Book Entry System of the Federal Reserve System to the account of the
Collateral Agent or to an account (other than an account of the Pledgor)
designated by the Collateral Agent; and
(3) Pledged Marketable Securities. In the case of Collateral
consisting of Marketable Securities, by delivery of certificates
evidencing such Marketable Securities, registered in the name of the
Collateral Agent or its nominee or, if such Marketable Securities are not
issuable in certificated form but are held in book entry form by The
Depository Trust Company, by transfer to an account of the Collateral
Agent or to an account (other than an account of the Pledgor) designated
by the Collateral Agent with The Depository Trust Company. Each such
delivery of Marketable Securities shall be accompanied by an opinion of
counsel satisfactory to the Collateral Agent that the Collateral Agent has
obtained a valid, first priority perfected security interest in, and a
first lien upon, such Marketable Securities.
Upon delivery of any Pledged Item under this Collateral Agreement, the
Collateral Agent shall examine such Pledged Item and any opinions and
certificates delivered pursuant to Sections 6(b) or (c) or otherwise pursuant to
the terms hereof in connection therewith to determine that they comply as to
form with the requirements for Eligible Collateral. The Pledgor hereby
designates the Collateral Agent as the person in whose name any Collateral held
in book entry form in the Federal Reserve System shall be registered.
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(e) Insufficiency Determination.
(1) If at 4:00 p.m., New York City time, on any Business Day the
Collateral Agent determines that the aggregate Pledge Value of the Collateral is
less than the Pledge Value Requirement (any such determination, an
"Insufficiency Determination"), the Collateral Agent shall promptly notify the
Pledgor of such determination by telephone call to an Authorized Representative
of the Pledgor followed by a written confirmation of such call.
(2) If, by 4:00 p.m., New York City time on the next Business Day
following the day on which telephonic notice shall have been given pursuant to
the preceding paragraph (e)(1), the Pledgor shall have failed to deliver, in the
manner set forth in paragraphs (c) and (d) of this Section 6, sufficient
additional Eligible Collateral so that, after giving effect to such delivery,
the aggregate Pledge Value of the Collateral, as of such next business day, is
at least equal to the Pledge Value Requirement, then (x) the Collateral
Requirement with respect to any U.S. Government Securities pledged hereunder
(other than in respect of Cash Delivery Obligations) shall be increased from
150% to 200%, and (y) unless a Collateral Event of Default shall have occurred
and be continuing, the Collateral Agent shall:
(i) commence sales, in the manner described in paragraph (3) below,
of such portion of the Collateral consisting of U.S. Government Securities
as may be required to be sold in order to generate proceeds sufficient to
purchase Common Stock or, after a Reorganization Event, Marketable
Securities, as described in the following clause (ii); and
(ii) commence purchases, in the manner described in paragraph (3)
below, of Common Stock or, after a Reorganization Event, Marketable
Securities, in an amount sufficient to cause the aggregate Pledge Value of
the Collateral to be at least equal to the Pledge Value Requirement.
Notwithstanding the foregoing, the Collateral Agent shall discontinue sales and
purchases pursuant to the preceding
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clauses (i) and (ii), respectively, if at any time a Collateral Event of Default
shall have occurred and be continuing. The Collateral Agent shall determine the
Market Value and the Pledge Value of the Collateral after each purchase of
Common Stock or Marketable Securities pursuant to the preceding clause (ii) in
order to determine whether the Pledge Value Requirement is met and whether a
Collateral Event of Default has occurred. Solely for purposes of such
calculation, the Market Value of the Common Stock or Marketable Securities shall
be: (A) the most recent sales price as reported in the composite transactions
for the principal securities exchange on which the Common Stock or Marketable
Securities, as the case may be, are then listed or, if such securities are not
so listed, the last quoted ask price for such securities in the over-the-counter
market as reported by The NASDAQ National Market or, if not so reported, by the
National Quotation Bureau or a similar organization; or (B) if higher, in the
case of Common Stock, the most recent available Closing Price.
A "Collateral Event of Default" shall mean, at any time, the
occurrence of any of the following: (A) if no U.S. Government Securities shall
be pledged as substitute Collateral at such time, failure of the aggregate
Market Value of the Collateral to equal or exceed the Pledge Value Requirement;
(B)if any U.S. Government Securities shall be pledged as substitute Collateral
at such time, failure of the Market Value of any U.S. Government Securities
pledged at such time (not including any U.S. Government Securities pledged in
respect of Cash Delivery Obligations at such time) to have an aggregate Market
Value of at least 105% of the Market Value of a number of shares of Common Stock
(or, from and after any Reorganization Event, Marketable Securities) equal to
(x) the Maximum Deliverable Number thereof minus (y) the number thereof pledged
as Collateral hereunder at such time; or (C) from and after any Reorganization
Event in which consideration other than Marketable Securities shall have been
delivered, failure of the U.S. Government Securities pledged in respect of Cash
Delivery Obligations to have an aggregate Market Value at least equal to 105% of
the Cash Delivery Obligations at such time, if, in the case of a failure
described in this clause (C), such failure shall continue to be in effect at
4:00 p.m., New York City time, on the next Business Day
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following the day on which telephonic notice in respect thereof shall have been
given pursuant to paragraph (e)(1) above. For purposes of this Agreement, the
portion of any pledged U.S. Government Securities that shall be deemed to be in
respect of Cash Delivery Obligations at any time shall be a portion having a
Market Value equal to 105% of the Cash Delivery Obligations at such time (or, if
less, the aggregate Market Value of all U.S. Government Securities pledged at
such time).
(3) Collateral sold and Common Stock or shares of Marketable
Securities purchased by the Collateral Agent pursuant to the preceding
paragraphs (e)(1) and (2) may be sold and purchased on any securities exchange
or in any over-the-counter market or in any private purchase transaction, and at
such price or prices, in each case as the Collateral Agent may deem
satisfactory. The Pledgor covenants and agrees that it will execute and deliver
such documents and take such other action as the Collateral Agent deems
necessary or advisable in order that any such sales and purchases may be made in
compliance with law.
(f) Release of Excess Collateral. If on any Business Day the
Collateral Agent determines that the aggregate Pledge Value of the Pledgor's
Eligible Collateral exceeds the Pledge Value Requirement and no Event of Default
or failure by the Pledgor to meet any of its obligations under Sections 5 or 6
hereof has occurred and is continuing, the Pledgor may obtain the release from
the Lien hereof of any Collateral having an aggregate Pledge Value on such
Business Day less than or equal to such excess, upon delivery to the Collateral
Agent of a written notice from an Authorized Representative of the Pledgor
indicating the items of Collateral to be released. Such Collateral shall be
released only after the Collateral Agent shall have determined that the
aggregate Pledge Value of all of the Collateral remaining after such release as
determined on such Business Day is at least equal to the Pledge Value
Requirement.
(g) Delivery of Purchase Agreement Consideration. On the Exchange
Date, unless a Reorganization Event shall have occurred prior thereto, the
Collateral Agent shall deliver to the Trust Common Stock then held by it
hereunder
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representing the number of shares of Common Stock then required to be delivered
under the Purchase Agreement. If a Reorganization Event shall have occurred
prior to the Exchange Date, then, (A) if the consideration received by holders
of Common Stock in such Reorganization Event does not include Marketable
Securities, the Collateral Agent shall deliver to the Trust all cash or other
assets then held by the Collateral Agent and required to be delivered under the
Purchase Agreement; and (B) in any other case, if so instructed by the Pledgor
by the close of business on the Business Day preceding the Exchange Date, the
Collateral Agent shall deliver to the Trust, to the extent permitted to be
delivered in lieu of cash required to be delivered on such date under Section
6.2 of the Purchase Agreement, the Marketable Securities then held by the
Collateral Agent hereunder. Upon such delivery, the Trust shall hold such Common
Stock or Marketable Securities, as the case may be, absolutely and free from any
claim or right whatsoever.
(h) Investment of Cash Collateral. The Collateral Agent shall invest
any cash received by it pursuant to Section 6.2 of the Purchase Agreement in
U.S. Treasury Securities maturing on or before May __, 2001.
7. Income and Voting Rights on Collateral.
(a) Unless an Event of Default or failure by the Pledgor to meet any
of its obligations under Section 5(b) or (c) hereof has occurred and is
continuing, the Pledgor shall be entitled to receive for its own account all
dividends, interest and, if any, principal and premium relating to all of the
Collateral, unless the payment thereof to the Pledgor would reduce the aggregate
Pledge Value of the Collateral below the Pledge Value Requirement. The
Collateral Agent agrees to remit to the Pledgor on the Business Day received or
the first Business Day thereafter all such payments received by it. If an Event
of Default or failure by the Pledgor to meet any of its obligations under
Section 5(b) or (c) hereof has occurred and is continuing, all such payments
made or accrued after and during the continuance of such default or failure
shall be retained by the Collateral Agent, and any such payments which are
received by the Pledgor shall be received in trust for the benefit of the Trust,
shall be segregated from other funds of the Pledgor
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and shall forthwith be paid over to the Collateral Agent. Any such payments so
retained by, or paid over to, the Collateral Agent shall be held by the
Collateral Agent as Collateral hereunder.
(b) Unless an Event of Default has occurred and is continuing, the
Pledgor shall have the right, from time to time, to vote and to give consents,
ratifications and waivers with respect to the Collateral, and the Collateral
Agent shall, upon receiving a written request from the Pledgor, deliver to the
Pledgor or as specified in such request such proxies, powers of attorney,
consents, ratifications and waivers in respect of any of the Collateral which is
registered in the name of the Collateral Agent or its nominee as shall be
specified in such request and be in form and substance satisfactory to the
Collateral Agent.
If an Event of Default shall have occurred and be continuing, the
Collateral Agent shall have the right to the extent permitted by law, and the
Pledgor shall take all such action as may be necessary or appropriate to give
effect to such right, to vote and to give consents, ratifications and waivers,
and take any other action with respect to any or all of the Collateral with the
same force and effect as if the Collateral Agent were the absolute and sole
owner thereof.
8. Remedies upon Events of Default.
(a) If any Event of Default shall have occurred and be continuing,
the Collateral Agent may exercise on behalf of the Trust all the rights of a
secured party under the UCC (whether or not in effect in the jurisdiction where
such rights are exercised) and, in addition, without being required to give any
notice, except as herein provided or as may be required by mandatory provisions
of law, shall: (i) deliver all Collateral consisting of Common Stock or
Marketable Securities (but not, in either case, in excess of the number of
shares thereof deliverable under the Purchase Agreement at such time) to the
Trust on the date of the Acceleration Notice relating to such Event of Default
(or, in the case of an Event of Default described in clause (iii) or (iv) of the
definition thereof, on the Exchange Date) (in
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either case, the "Delivery Date"), whereupon the Trust shall hold such Common
Stock or Marketable Securities absolutely free from any claim or right of
whatsoever kind, including any equity or right of redemption of the Pledgor
which may be waived, and the Pledgor, to the extent permitted by law, hereby
specifically waives all rights of redemption, stay or appraisal which it has or
may have under any law now existing or hereafter adopted; and (ii) if such
delivery shall be insufficient to satisfy in full all of the obligations of
Pledgor under the Purchase Agreement, sell all of the remaining Collateral, or
such lesser portion thereof as may be necessary to generate proceeds sufficient
to satisfy in full all of the obligations of Pledgor under the Purchase
Agreement, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery, and at such
price or prices as the Collateral Agent may deem satisfactory. The Pledgor
covenants and agrees that it will execute and deliver such documents and take
such other action as the Collateral Agent reasonably deems necessary or
advisable in order that any such sale may be made in compliance with law. Upon
any such sale the Collateral Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold. Each purchaser at any
such sale shall hold the Collateral so sold absolutely and free from any claim
or right of whatsoever kind, including any equity or right of redemption of the
Pledgor which may be waived, and the Pledgor, to the extent permitted by law,
hereby specifically waives all rights of redemption, stay or appraisal which it
has or may have under any law now existing or hereafter adopted. The notice (if
any) of such sale required by Article 9 of the UCC shall (1) in case of a public
sale, state the time and place fixed for such sale, (2) in case of sale at a
broker's board or on a securities exchange, state the board or exchange at which
such sale is to be made and the day on which the Collateral, or the portion
thereof so being sold, will first be offered for sale at such board or exchange,
and (3) in the case of a private sale, state the day after which such sale may
be consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Collateral Agent may
fix in the notice of such sale. At any such sale the Collateral may be sold in
one lot as an entirety or in separate parcels, as the Collateral Agent may
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determine. The Collateral Agent shall not be obligated to make any such sale
pursuant to any such notice. The Collateral Agent may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to which the same may be so
adjourned. In case of any sale of all or any part of the Collateral on credit or
for future delivery, the Collateral so sold may be retained by the Collateral
Agent until the selling price is paid by the purchaser thereof, but the
Collateral Agent shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. The Collateral
Agent, instead of exercising the power of sale herein conferred upon it, may
proceed by a suit or suits at law or in equity to foreclose the security
interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(b) Power of Attorney. Upon any delivery or sale of all or any part
of any Collateral made either under the power of delivery or sale given
hereunder or under judgment or decree in any judicial proceedings for
foreclosure or otherwise for the enforcement of this Collateral Agreement, the
Collateral Agent is hereby irrevocably appointed the true and lawful attorney of
the Pledgor, in the name and stead of the Pledgor, to make all necessary deeds,
bills of sale and instruments of assignment, transfer or conveyance of the
property thus delivered or sold. For that purpose the Collateral Agent may
execute all such documents and instruments. This power of attorney shall be
deemed coupled with an interest, and the Pledgor hereby ratifies and confirms
all that its attorneys acting under such power, or such attorneys' successors or
agents, shall lawfully do by virtue of this Collateral Agreement. If so
requested by the Collateral Agent, by the Trustees or by any purchaser of the
Collateral or a portion thereof, the Pledgor shall further ratify and confirm
any such delivery or sale by executing and delivering to the Collateral Agent,
to the Trustees or to such purchaser or purchasers at the expense of the Pledgor
all proper deeds, bills of sale, instruments of
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assignment, conveyance of transfer and releases as may be designated in any such
request.
(c) Application of Collateral and Proceeds. In the case of an Event
of Default, the Collateral Agent may proceed to realize upon the security
interest in the Collateral against any one or more of the types of Collateral,
at any one time, as the Collateral Agent shall determine in its sole discretion
subject to the foregoing provisions of this Section 8. The proceeds of any sale
of, or other realization upon, or other receipt from, any of the remaining
Collateral shall be applied by the Collateral Agent in the following order of
priorities:
first, to the payment to the Trust of an amount equal to: (A) the
aggregate Market Value of a number of shares of Common Stock equal to (1)
the number of shares of Common Stock required to be delivered under the
Purchase Agreement on the Delivery Date minus (2) the number of shares of
Common Stock delivered by the Collateral Agent to the Trust on the
Delivery Date as described above; or (B) from and after a Reorganization
Event, the sum of (1) the Cash Delivery Obligations on the Delivery Date
and (2) the aggregate Market Value on the Delivery Date of a number of
Marketable Securities equal to (x) the number thereof permitted to be
delivered on the Delivery Date under Section 6.2 of the Purchase Agreement
minus (y) the number thereof delivered by the Collateral Agent to the
Trust on the Delivery Date as described above;
second, to the payment to the Collateral Agent of the expenses of
such sale or other realization, including reasonable compensation to the
Collateral Agent and its agents and counsel, and all expenses, liabilities
and advances incurred or made by the Collateral Agent in connection
therewith, including brokerage fees in connection with the sale by the
Collateral Agent of any Pledged Item; and
finally, if all of the obligations of the Pledgor hereunder and
under the Purchase Agreement have been fully discharged or sufficient
funds have been set aside by the Collateral Agent at the request of the
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Pledgor for the discharge thereof, any remaining proceeds shall be
released to the Pledgor.
9. The Collateral Agent.
The Collateral Agent accepts its duties and responsibilities
hereunder as agent for the Trust, on and subject to the following terms and
conditions:
(a) Performance of Duties. The Collateral Agent undertakes to
perform such duties and only such duties as are expressly set forth herein and,
beyond the exercise of reasonable care in the performance of such duties, no
implied covenants or obligations shall be read into this Collateral Agreement
against the Collateral Agent. No provision hereof shall be construed to relieve
the Collateral Agent from liability for its own grossly negligent action,
grossly negligent failure to act or its own wilful misconduct, subject to the
following:
(1) The Collateral Agent may consult with counsel, and the advice or
opinion of such counsel shall be full and complete authorization and
protection in respect of an action taken or suffered hereunder in good
faith and in accordance with such advice or opinion of counsel.
(2) The Collateral Agent shall not be liable with respect to any
action taken, suffered or omitted by it in good faith (i) reasonably
believed by it to be authorized or within the discretion or rights or
powers conferred on it by this Collateral Agreement or (ii) in accordance
with any direction or request of the Trustees.
(3) The Collateral Agent shall not be liable for any error of
judgment made in good faith by any of its officers, unless the Collateral
Agent was grossly negligent in ascertaining the pertinent facts.
(4) In the absence of bad faith on its part, the Collateral Agent
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any note, notice,
resolution,
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consent, certificate, affidavit, letter, telegram, teletype message,
statement, order or other document believed by it to be genuine and
correct and to have been signed or sent by the proper Person or Persons.
(5) No provision of this Collateral Agreement shall require the
Collateral Agent to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder, or
in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(6) The Collateral Agent may perform any duties hereunder either
directly or by or through agents or attorneys, and the Collateral Agent
shall not be responsible for any misconduct or negligence on the part of
any agent or attorney appointed with due care by it hereunder. In
furtherance thereof, any subsidiary owned or controlled by the Collateral
Agent, or its successors, as agent for the Collateral Agent, may perform
any or all of the duties of the Collateral Agent relating to the valuation
of securities and other instruments constituting Collateral hereunder.
(7) In no event shall the Collateral Agent be personally liable for
any taxes or other governmental charges imposed upon or in respect of (i)
the collateral or (ii) the income or other distributions thereon.
(8) Unless and until the Collateral Agent shall have received notice
from the Pledgor, or unless and until a Responsible Officer of the
Collateral Agent shall have actual knowledge to the contrary, the
Collateral Agent shall be entitled to deem and treat all Collateral
delivered to it hereunder as Eligible Collateral hereunder, provided that
the Collateral Agent has carried out the duties specified in Section 6
with respect to such Collateral at the time of delivery thereof.
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The Collateral Agent shall not be responsible for the correctness of the
recitals and statements herein which are made by the Pledgor or for any
statement or certificate delivered by the Pledgor pursuant hereto. Except as
specifically provided herein, the Collateral Agent shall not be responsible for
the validity, sufficiency, collectibility or marketability of any Collateral
given to or held by it hereunder or for the validity or sufficiency of the
Purchase Agreement or the Lien on the Collateral purported to be created hereby.
(b) Knowledge. The Collateral Agent shall not be deemed to have
knowledge of any Event of Default (except a Collateral Event of Default), unless
and until a Responsible Officer of the Collateral Agent shall have actual
knowledge thereof or shall have received written notice thereof.
(c) Merger. Any corporation or association into which the Collateral
Agent may be converted or merged, or with which it may be consolidated, or to
which it may sell or transfer its agency business and assets as a whole or
substantially as a whole, or any corporation or association resulting from any
such conversion, sale, merger, consolidation or transfer to which it is a party,
shall, subject to the prior written consent of the Trust, be and become a
successor Collateral Agent hereunder and vested with all of the title to the
Collateral and all of the powers, discretions, immunities, privileges and other
matters as was its predecessor without, except as provided above, the execution
or filing of any instrument or any further act, deed or conveyance on the part
of any of the parties hereto, anything herein to the contrary notwithstanding.
(d) Resignation. The Collateral Agent and any successor Collateral
Agent may at any time resign by giving thirty days' written notice by registered
or certified mail to the Pledgor and notice to the Trust in accordance with the
provisions of Section 10(d) hereof. Such resignation shall take effect upon the
appointment of a successor Collateral Agent by the Trust.
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(e) Removal. The Collateral Agent may be removed at any time by an
instrument or concurrent instruments in writing delivered to the Collateral
Agent and to the Pledgor and signed by the Trust.
(f) Appointment of Successor. (1) If the Collateral Agent hereunder
shall resign or be removed, or be dissolved or shall be in the course of
dissolution or liquidation or otherwise become incapable of action hereunder, or
if it shall be taken under the control of any public officer or officers or of a
receiver appointed by a court, a successor may be appointed by the Trust by an
instrument or concurrent instruments in writing signed by the Trust or by its
attorneys in fact fully authorized. A copy of such instrument or concurrent
instruments shall be sent by registered mail to the Pledgor.
(2) Every such temporary or permanent successor Collateral Agent
appointed pursuant to the provisions hereof shall be a trust company or bank in
good standing, having a reported capital and surplus of not less than
$100,000,000 and capable of holding the Collateral in the State of New York, if
there be such an institution willing, qualified and able to accept the duties of
the Collateral Agent hereunder upon customary terms.
(g) Acceptance by Successor. Every temporary or permanent successor
Collateral Agent appointed hereunder shall execute, acknowledge and deliver to
its predecessor and also to the Pledgor an instrument in writing accepting such
appointment hereunder, whereupon such successor, without any further act, deed
or conveyance, shall become fully vested with all the estates, properties,
rights, powers, duties and obligations of its predecessors. Such predecessor
shall, nevertheless, on the written request of its successor or the Pledgor,
execute and deliver an instrument transferring to such successor all the
estates, properties, rights and powers of such predecessor hereunder. Every
predecessor Collateral Agent shall deliver all Collateral held by it as the
Collateral Agent hereunder to its successor. Should any instrument in writing
from the Pledgor be required by a successor Collateral Agent for more fully and
certainly vesting in such successor the estates, properties, rights, powers,
duties and obligations hereby
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vested or intended to be vested in the predecessor, any and all such instruments
in writing shall, at the request of the temporary or permanent successor
Collateral Agent, be forthwith executed, acknowledged and delivered by the
Pledgor.
10. Miscellaneous.
(a) Benefit of Agreement; Successors and Assigns. Whenever any of
the parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party. All the covenants and agreements herein
contained by or on behalf of the Pledgor and the Collateral Agent shall bind,
and inure to the benefit of, their respective successors and assigns whether so
expressed or not, and shall be enforceable by and inure to the benefit of the
Trust and its successors and assigns.
(b) Separability. To the extent permitted by law, the
unenforceability or invalidity of any provision or provisions of this Collateral
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
(c) Amendments and Waivers. Any term, covenant, agreement or
condition of this Collateral Agreement may be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retrospectively or prospectively) but only by a writing signed by the Collateral
Agent, the Pledgor and the Trust.
(d) Notices. (1) Any notice provided for herein, unless otherwise
specified, shall be in writing (including transmittals by telex or telecopier)
and shall be given to a party at the address set forth opposite such party's
name on the signature pages hereto or at such other address as may be designated
by notice duly given in accordance with this Section 10(d) to each other party
hereto.
(2) Each such notice given pursuant to paragraph (1) shall be
effective (i) if sent by certified mail (return receipt requested), 72 hours
after being deposited in the United States mail, postage prepaid; (ii) if given
by telex or telecopier, when such telex or telecopied notice is
-26-
<PAGE> 29
transmitted; or (iii) if given by any other means, when delivered at the address
specified in this Section 10(d).
(e) Governing Law. This Collateral Agreement shall in all respects
be construed in accordance with and governed by the laws of the State of New
York; provided that as to Pledged Items located in any jurisdiction other than
the State of New York, the Collateral Agent on behalf of the Trust shall have
all of the rights to which a secured party is entitled under the laws of such
other jurisdiction.
(f) Counterparts. This Collateral Agreement may be executed,
acknowledged and delivered in any number of counterparts and such counterparts
taken together shall constitute one and the same instrument.
11. Termination of Collateral Agreement.
This Collateral Agreement and the rights hereby granted by the
Pledgor in the Collateral shall cease, terminate and be void upon fulfillment of
all of the obligations of the Pledgor under the Purchase Agreement, and the
Pledgor shall have no further liability hereunder upon such termination. Any
Collateral remaining at the time of such termination shall be fully released and
discharged from the Lien hereof and delivered to the Pledgor by the Collateral
Agent, all at the expense of the Pledgor.
12. No Personal Liability of Trustees.
By executing this Collateral Agreement none of the Trustees assumes
any personal liability hereunder.
-27-
<PAGE> 30
IN WITNESS WHEREOF, the Pledgor has caused this Collateral Agreement
to be duly executed on its behalf, and the Collateral Agent has caused this
Collateral Agreement to be duly executed on its behalf, as of the date hereof.
PLEDGOR:
---------------------
By
----------------------------
Name:
Title:
Address for Notices:
---------------------
Attention: __________________
-28-
<PAGE> 31
COLLATERAL AGENT:
---------------------
as Collateral Agent
By
----------------------------
Name:
Title:
Address for Notices:
---------------------
New York, New York ___________
Attention: ___________________
-29-
<PAGE> 32
THE TRUST:
CVS AUTOMATIC COMMON EXCHANGE
SECURITY TRUST
------------------------------
as Trustee
------------------------------
as Trustee
------------------------------
as Trustee
Address for Notices:
-30-
<PAGE> 33
Exhibit A
to
Collateral Agreement
CERTIFICATE FOR SUBSTITUTED COLLATERAL
The undersigned, _____________ (the "Pledgor"), hereby certifies,
pursuant to Section 6(b) of the Collateral Agreement dated as of May __, 1998
among the Pledgor, _________________, as Collateral Agent, and CVS AUTOMATIC
COMMON EXCHANGE SECURITY TRUST (the "Collateral Agreement"; terms defined in the
Collateral Agreement being used herein as defined therein), that:
1. The Pledgor is delivering the following securities to the
Collateral Agent to be held by the Collateral Agent as substituted Collateral
(the "Substituted Collateral"):
2. The Pledgor requests that the Collateral Agent transfer to the
Pledgor the following Prior Collateral, pursuant to Section 6(b) of the
Collateral Agreement:
3. The Pledgor hereby represents and warrants to the Collateral
Agent and the Trust that:
(a) Consents to Transfer. No Transfer Restrictions exist with
respect to or otherwise apply to the assignment of, or transfer by the Pledgor
of possession of, any items of Substituted Collateral to the Collateral Agent
under the Collateral Agreement, or the subsequent sale or transfer of such items
of Substituted Collateral by the Collateral Agent pursuant to the terms of the
Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The Pledgor
has good and marketable title to the Substituted Collateral, free of all Liens
(other than the Lien created by the Collateral Agreement) and Transfer
Restrictions. Upon delivery of the Collateral to the Collateral Agent, the
Collateral Agent will obtain a valid, first priority perfected security interest
in, and a first lien upon, such Substituted Collateral subject to no other
<PAGE> 34
Lien. None of such Substituted Collateral is or shall be pledged by the Pledgor
as collateral for any other purpose.
This Certificate may be relied upon by the Trust as fully and to the
same extent as if this Certificate had been specifically addressed to the Trust.
-2-
<PAGE> 35
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this _____ day of ____________, ____.
------------------------------
Name:
Title:
-3-
<PAGE> 36
Exhibit B
to
Collateral Agreement
CERTIFICATE FOR ADDITIONAL COLLATERAL
The undersigned, __________________ (the "Pledgor"), hereby
certifies, pursuant to Section 6(c) of the Collateral Agreement, dated as of May
__, 1998, among the Pledgor,_________________, as Collateral Agent and CVS
AUTOMATIC COMMON EXCHANGE SECURITY TRUST (the "Collateral Agreement"; terms
defined in the Collateral Agreement being used herein as defined therein), that:
1. The Pledgor is delivering the following securities to the
Collateral Agent to be held by the Collateral Agent as additional Collateral
(the "Additional Collateral"):
2. The Pledgor hereby represents and warrants to the Collateral
Agent that:
(a) Consents to Transfer. No Transfer Restrictions exist with
respect to or otherwise apply to the assignment of, or transfer by the Pledgor
of possession of, any items of Additional Collateral to the Collateral Agent
under the Collateral Agreement, or the subsequent sale or transfer of such items
of Additional Collateral by the Collateral Agent pursuant to the terms of the
Collateral Agreement.
(b) Title to Collateral; Perfected Security Interest. The Pledgor
has good and marketable title to the Additional Collateral, free of all Liens
(other than the Lien created by the Collateral Agreement) and Transfer
Restrictions. Upon delivery of the Collateral to the Collateral Agent, the
Collateral Agent will obtain a valid, first priority perfected security interest
in, and a first lien upon, such additional Collateral subject to no other Lien.
None of such Additional Collateral is or shall be pledged by the Pledgor as
collateral for any other purpose.
<PAGE> 37
This Certificate may be relied upon by the Trust as fully and to the
same extent as if this Certificate had been specifically addressed to the Trust.
-2-
<PAGE> 38
IN WITNESS WHEREOF, the undersigned has executed this Certificate
this _____ day of ____________, ____.
------------------------------
Name:
Title:
-3-
<PAGE> 1
Exhibit 2.k.(v)
FUND EXPENSE AGREEMENT
FUND EXPENSE AGREEMENT, dated as of May __, 1998, between Goldman,
Sachs & Co. ("Goldman Sachs") and _____________ (the "Service Provider"), in its
capacities as custodian, paying agent and collateral agent for CVS Automatic
Common Exchange Security Trust (the "Trust").
WHEREAS the Trust is a trust formed under the laws of the State of
New York pursuant to a Trust Agreement, as amended and restated as of May __,
1998 (the "Trust Agreement"); and
WHEREAS, Goldman Sachs, as sponsor under the Trust Agreement,
desires to make provisions for the payment of certain initial and on-going
expenses of the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
1. Definitions. (a) Capitalized terms used herein and not defined
herein shall have the meanings ascribed thereto in the Trust Agreement.
(b) The following terms shall have the following meanings:
"Additional Expense" means the Ordinary Expense the incurring of
which will require the Service Provider to provide the Additional Expense Notice
pursuant to Section 3(a) hereof and any Ordinary Expense incurred thereafter.
"Additional Expense Notice" means the notice required to be given by
the Service Provider to Goldman Sachs pursuant to Section 3(a)(i) hereof.
"First Time of Delivery" shall have the meaning ascribed thereto in
the Underwriting Agreement.
<PAGE> 2
"Ordinary Expense" of the Trust means any expense of the Trust other
than any expense of the Trust arising under Section 6.6 of the Administration
Agreement, Section 15 of the Custodian Agreement, Section 5.4(b) of the Paying
Agent Agreement, or Section 7.6 of the Trust Agreement.
"Up-front Fee Amount" means the amount set forth as such on Schedule
I hereto payable as a one-time payment to the Service Provider in respect of its
collective services as Administrator, Custodian, Paying Agent and Collateral
Agent for the entire term of the Trust.
"Up-front Expense Amount" means the amount set forth as such on
Schedule I hereto payable as a one-time payment to the Service Provider in
respect of Ordinary Expenses anticipated to be incurred by the Administrator on
behalf of the Trust, pursuant to the Administration Agreement, during the term
of the Trust.
2. Agreement to Pay Up-front Fees and Expenses. Goldman Sachs agrees
to pay to the Service Provider in Federal (same day) funds at the First Time of
Delivery the Up-front Fee Amount and the Up-front Expense Amount.
3. Agreement to Pay Additional Expenses. (a) Prior to incurring any
Ordinary Expense on behalf of the Trust that, together with all prior Ordinary
Expenses incurred by the Administrator on behalf of the Trust, would cause the
aggregate amount of Ordinary Expenses of the Trust to exceed the Up-front
Expense Amount, the Administrator shall provide to Goldman Sachs (i) prompt
written notice to the effect that the aggregate amount of Ordinary Expenses of
the Trust will exceed the Up-front Expense Amount, and (ii) an accounting, in
such detail as shall be reasonably acceptable to Goldman Sachs, of all Ordinary
Expenses incurred on behalf of the Trust through the date of the Additional
Expense Notice.
(b) From and after the date of the Additional Expense Notice, the
Service Provider agrees that it will not, without the prior written consent of
Goldman Sachs, incur on behalf of the Trust (i) any single expense in excess of
$1,000 or (ii) in any calendar period, expenses
-2-
<PAGE> 3
aggregating in excess of $3,000. Subject to the foregoing, the Service Provider
shall give notice to Goldman Sachs in writing promptly following the incurring
of any Additional Expense. Such notice shall be accompanied by any demand, bill,
invoice or other similar document in respect of such Additional Expense.
(c) Subject to the first sentence of paragraph (b) of this Section
3, Goldman Sachs agrees to pay to the Service Provider from time to time the
amount of any Additional Expense. Payment by Goldman Sachs of any Additional
Expense shall be made in New York Clearing House funds by the later of (i) five
Business Days after the receipt by Goldman Sachs from the Service Provider of
notice of the incurring thereof or (ii) the due date for the payment of such
Additional Expense.
(d) Goldman Sachs may contest in good faith the reasonableness of
any Additional Expense and the parties shall attempt to resolve amicably the
disagreement; provided that if the parties cannot resolve the dispute by the due
date hereunder with respect to such Additional Expense, subject to the first
sentence of paragraph (b) of this Section 3, Goldman Sachs shall pay the amount
of such Additional Expense subject to later adjustment and credit if such
dispute is resolved in favor of Goldman Sachs.
4. Condition to Payment. Goldman Sachs' obligations under paragraphs
2 and 3 hereof shall be subject to the condition that the Trust's Automatic
Common Exchange Securities shall have been issued and paid for at the First Time
of Delivery.
5. Trust Termination; Refund of Unused Expense Funds. If at the
termination of the Trust in accordance with Section 8.3 of the Trust Agreement
the aggregate amount of Ordinary Expenses incurred by the Service Provider on
behalf of the Trust through the date of termination shall be less than the
Up-front Expenses Amount, the Service Provider shall, promptly following the
date of such termination, pay to Goldman Sachs in New York Clearing House funds
the amount of such excess.
-3-
<PAGE> 4
6. Termination of Administration Agreement. In the event of the
termination of the Administration Agreement in accordance with Section 4.1
thereof, the Service Provider shall promptly pay to Goldman Sachs the portion of
its Up-front Fee Amount ratable for the period from the date of the termination
of the Administration Agreement to the Exchange Date together with any
unexpended portion of the Up-front Expense Amount.
7. Statements and Reports. The Service Provider shall collect and
safekeep all demands, bills, invoices or other written communications received
from third parties in connection with any Ordinary Expenses and Additional
Expenses and shall prepare and maintain adequate books and records showing all
receipts and disbursements of funds in connection therewith. Goldman Sachs shall
have the right to inspect and to copy, at its expense, all such documents, books
and records at all reasonable times and from time to time during the term of
this Agreement.
8. Term of Contract. This Agreement shall continue in effect until
the termination of the Trust in accordance with Section 8.3 of the Trust
Agreement.
9. No Assignment. No party to this Agreement may assign its rights
or delegate its duties hereunder without the prior written consent of the other
party.
10. Amendments. The Service Provider agrees that it will not consent
to any amendment of the Administration Agreement, the Custodian Agreement, the
Paying Agent Agreement or the Collateral Agreement without the prior written
consent of Goldman Sachs.
11. Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the matters contained herein and supersedes
all prior agreements or understandings. No amendment or modification of this
Agreement shall be valid unless the amendment or modification is in writing and
is signed by all the parties to this Agreement.
-4-
<PAGE> 5
12. Notices. All notices, demands, reports, statements, approvals or
consents given by any party under this Agreement shall be in writing and shall
be delivered in person or by telecopy or other facsimile communication or sent
by first-class U.S. mail, registered or certified, postage prepaid, to the
appropriate party at its address on the signature pages hereof or at such other
address subsequently notified to the other parties hereto. Any party may change
its address for purposes hereof by delivering a written notice of the change to
the other parties. All notices given under this Agreement shall be deemed
received (a) in the case of hand delivery, on the day of delivery, (b) in the
case of telecopy or other facsimile communication, on the day of transmission,
and (c) in the case of mailing, on the third day after such notice was deposited
in the mail.
13. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
14. Governing Law. This Agreement shall be governed by and be
construed in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in counterparts with
all of such counterparts constituting one and the same instrument.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Fund Expense
Agreement to be executed by their authorized representatives the date first
above written.
GOLDMAN, SACHS & CO.
By____________________________
Address:
85 Broad Street
New York, New York 10004
-------------
By____________________________
Address:
<PAGE> 7
SCHEDULE I
<TABLE>
<S> <C>
Directors & Officers Insurance $ 82,500
Fidelity Bond $ 7,000
Tax on Directors & Officers
Insurance and Fidelity Bond $ 4,000
Trustees Fees $ 36,000
- ---------------
Acceptance Fee $ 5,000
Annual Administrative Fee $125,000
External Counsel Fees $100,000
Accounting Fees $100,000
--------
Total $459,500
========
</TABLE>
-7-
<PAGE> 1
Exhibit 2.k.(vi)
FUND INDEMNITY AGREEMENT
FUND INDEMNITY AGREEMENT, dated as of May __, 1998, between Goldman,
Sachs & Co. ("Goldman Sachs") and William R. Latham III, James B. O'Neill and
Donald J. Puglisi (collectively, the "Trustees"), not in their individual
capacities but solely as trustees of CVS Automatic Common Exchange Security
Trust (the "Trust").
WHEREAS the Trust is a trust formed under the laws of the State of
New York pursuant to a Trust Agreement, as amended and restated as of May __,
1998 (the "Trust Agreement"); and
WHEREAS, Goldman Sachs, as sponsor under the Trust Agreement,
desires to make provision for the payment of certain indemnification expenses of
the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
1. Definitions. Capitalized terms used herein and not defined herein
shall have the meanings ascribed thereto in the Trust Agreement.
2. Agreement to Pay Expenses. Goldman Sachs agrees to pay to the
Trust, and hold the Trust harmless from, any expenses of the Trust arising under
Sections 2.2(e) and 6.6 of the Administration Agreement, Section 15 of the
Custodian Agreement, Section 5.4(b) of the Paying Agent Agreement and Section
7.6 of the Trust Agreement (collectively, "Indemnification Expenses"). Subject
to paragraph 4 hereof, payment hereunder by Goldman Sachs shall be made in New
York Clearing House funds no later than five Business Days after the receipt by
Goldman Sachs, pursuant to paragraph 3 hereof, of written notice of any claim
for Indemnification Expenses.
3. Notice of Receipt of Claim. The Trustees shall give notice to, or
cause notice to be given to,
<PAGE> 2
Goldman Sachs in writing of any claim for Indemnification Expenses or any
threatened claim for Indemnification Expenses immediately upon their acquiring
knowledge thereof. Such written notice shall be accompanied by any demand, bill,
invoice or other communication received from any third party claimant (a
"Claimant") in respect of such Indemnification Expense.
4. Right to Contest. The Trustees agree that Goldman Sachs may, and
Goldman Sachs is authorized on behalf of the Trustees and the Trust to, contest
in good faith with any Claimant any amount contained in any claim for
Indemnification Expense, provided, that if, within such time period as Goldman
Sachs shall determine to be reasonable, Goldman Sachs and such Claimant are
unable to resolve amicably any disagreement regarding such claim for
Indemnification Expense, Goldman Sachs shall retain counsel reasonably
satisfactory to the Trustees to represent the Trustees in any resulting
proceeding and shall pay the fees and disbursements of such counsel related to
such proceeding. It is understood that Goldman Sachs shall not, in respect of
the legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel).
Goldman Sachs shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there be a
final judgment for the Claimant, Goldman Sachs agrees to indemnify the Trustees
and the Trust from and against any loss or liability by reason of such
settlement or judgment.
5. Statements and Reports. The Trustees shall collect and safekeep
all demands, bills, invoices or other written communications received from third
parties in connection with any claim for Indemnification Expenses and shall
prepare and maintain adequate books and records showing all receipts and
disbursements of funds in connection therewith. Goldman Sachs shall have the
right to inspect and to copy, at its expense, all such documents, books and
records at all reasonable times and from time to time during the term of this
Agreement.
-2-
<PAGE> 3
6. Term of Contract. This Agreement shall continue in effect until
the termination of the Trust in accordance with Section 8.3 of the Trust
Agreement.
7. No Assignment. No party to this Agreement may assign its rights
or delegate its duties hereunder without the prior written consent of the other
parties, except that the Trust may delegate any and all duties hereunder to the
Administrator to the extent permitted by law.
8. Entire Agreement. This Agreement contains the entire agreement
among the parties with respect to the matters contained herein and supersedes
all prior agreements or understandings. No amendment or modification of this
Agreement shall be valid unless the amendment or modification is in writing and
is signed by all the parties to this Agreement.
9. Notices. All notices, demands, reports, statements, approvals or
consents given by any party under this Agreement shall be in writing and shall
be delivered in person or by telecopy or other facsimile communication or sent
by first-class U.S. mail, registered or certified, postage prepaid, to the
appropriate party at its address on the signature pages hereof or at such other
address subsequently notified to the other parties hereto. A copy of any
communication to Goldman Sachs shall be furnished to Goldman, Sachs & Co., 85
Broad Street, New York, New York 10004, attention: Registration Department,
provided that the failure to furnish such copy shall not affect the
effectiveness of any such communication. Any party may change its address for
purposes hereof by delivering a written notice of the change to the other
parties. All notices, given under this Agreement shall be deemed received (a) in
the case of hand delivery, on the day of delivery, (b) in the case of telecopy
or other facsimile communication, on the day of transmission, and (c) in the
case of mailing, on the third day after such notice was deposited in the mail.
-3-
<PAGE> 4
10. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
11. Governing Law. This Agreement shall be governed by and be
construed in accordance with the laws of the State of New York.
12. Counterparts. This Agreement may be signed in counterparts with
all of such counterparts constituting one and the same instrument.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Fund Indemnity
Agreement to be executed by their authorized representatives the date first
above written.
GOLDMAN, SACHS & CO.
By_________________________
Address:
85 Broad Street
New York, NY 10004
TRUSTEES
----------------------------------------
Name: William R. Latham III
Address: Department of Economics
University of Delaware
Newark, Delaware 19716
----------------------------------------
Name: James B. O'Neill
Address: Center for Economic
Education and
Entrepreneurship
University of Delaware
Newark, Delaware 19716
----------------------------------------
Name: Donald J. Puglisi
Address: Department of Finance
University of Delaware
Newark, Delaware 19716
<PAGE> 1
Exhibit 2.p
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT is entered into as of the __th day of
May 1998, between Paul S. Efron (the "Trustee"), not in his individual capacity,
but solely as trustee of CVS Automatic Common Exchange Security Trust, a trust
organized and existing under the laws of New York (the "Trust"), and Goldman,
Sachs & Co. or one of its affiliates (the "Purchaser").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF THE SECURITY
1.1 SALE AND ISSUANCE OF UNITS. Subject to the terms and conditions
of this Agreement, the Trustee agrees to sell to the Purchaser, and the
Purchaser agrees to purchase from the Trustee, one CVS Automatic Common Exchange
Security, representing an undivided beneficial interest in the Trust (the
"Security") at an aggregate purchase price of $100.
1.2 CLOSING. The purchase and sale of the Security shall take place
at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York at
9:30 a.m., on May __, 1998, or at such other time (the "Closing Date") and place
as the Trustee and the Purchaser mutually agree upon. At or after the Closing,
the Trustee shall deliver to the Purchaser a certificate representing the
Security, registered in the name of the Purchaser or its nominee. Payment for
the Security shall be made on the Closing Date by the Purchaser by bank wire
transfers or by delivery of certified or official bank checks, in either case in
immediately available funds, of an amount equal to the purchase price of the
Security purchased by the Purchaser.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER. The
Purchaser hereby represents and warrants to, and covenants for the benefit of,
the Trust that:
2.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made by the
Trustee with the Purchaser in
<PAGE> 2
reliance upon the Purchaser's representation to the Trustee, which by the
Purchaser's execution of this Agreement the Purchaser hereby confirms, that the
Security is being acquired for investment for the Purchaser's own account, and
not as a nominee or agent and not with a view to the resale or distribution by
the Purchaser of the Security, and that the Purchaser has no present intention
of selling, granting any participation in, or otherwise distributing the
Security, in either case in violation of any securities registration requirement
under applicable law, but subject nevertheless, to any requirement of law that
the disposition of its property shall at all times be within its control. By
executing this Agreement, the Purchaser further represents that the Purchaser
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Security.
2.2 INVESTMENT EXPERIENCE. The Purchaser acknowledges that it can
bear the economic risk of the investment for an indefinite period of time and
has such knowledge and experience in financial and business matters (and
particularly in the business in which the Trust operates) as to be capable of
evaluating the merits and risks of the investment in the Security. The Purchaser
is an "accredited investor" as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933, as amended (the "Act").
2.3 RESTRICTED SECURITIES. The Purchaser understands that the
Security is characterized as a "restricted security" under the United States
securities laws inasmuch as it is being acquired from the Trustee in a
transaction not involving a public offering and that under such laws and
applicable regulations such Security may be resold without registration under
the Act only in certain circumstances. In this connection, the Purchaser
represents that it understands the resale limitations imposed by the Act and is
generally familiar with the existing resale limitations imposed by Rule 144.
-2-
<PAGE> 3
2.4 FURTHER LIMITATIONS ON DISPOSITION. The Purchaser further agrees
not to make any disposition directly or indirectly of all or any portion of the
Security unless and until:
(a) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement;
(b) The Purchaser shall have furnished the Trustee with an opinion
of counsel, reasonably satisfactory to the Trustee, that such disposition will
not require registration of such Securities under the Act; or
(c) Notwithstanding the provisions of subsections (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by the Purchaser to any affiliate of the Purchaser, if the transferee
agrees in writing to be subject to the terms hereof to the same extent as if it
were the original Purchaser hereunder.
2.5 LEGENDS. It is understood that the certificate evidencing the
Security may bear either or both of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with
respect to the securities under such Act or an opinion of counsel
reasonably satisfactory to the Trustee of CVS Automatic Common Exchange
Security Trust that such registration is not required."
(b) Any legend required by the laws of any other applicable
jurisdiction.
The Purchaser and the Trustee agree that the legend contained in the
paragraph (a) above shall be removed
-3-
<PAGE> 4
at a holder's request when they are no longer necessary to ensure compliance
with federal securities laws.
2.6 AMENDMENT TO TRUST AGREEMENT; SPLIT OF THE SECURITIES. The
Purchaser consents to (a) the execution and delivery by the Trustee and Goldman,
Sachs & Co., as sponsor of the Trust, of an Amended and Restated Trust Agreement
in the form attached hereto and (b) the split of the Purchaser's Security.
Subsequent to the determination of the public offering price per Security and
related underwriting discount for the Securities to be sold to the Underwriters
(as defined in the aforementioned Amended and Restated Trust Agreement) but
prior to the sale of the Securities to the Underwriters, the Security purchased
hereby shall be split into a greater number of Securities so that immediately
following such split the value of each Security held by the Purchaser will equal
the aforesaid public offering price less the related underwriting discount.
2.7 COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
TRUSTEE
---------------------------------
Paul S. Efron
as Trustee
GOLDMAN, SACHS & CO.
By:________________________________
Title:
Address: 85 Broad Street
New York, NY 10004
