AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1994
REGISTRATION NO. 33-52939
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ECKERD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 5912 13-3302437
(State or other (Primary standard (IRS employer
jurisdiction of industrial identification number)
incorporation or classification code
organization) number)
8333 BRYAN DAIRY ROAD
LARGO, FLORIDA 34647
(813) 399-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
JAMES M. SANTO, ESQ.
SENIOR VICE PRESIDENT/ADMINISTRATION
8333 BRYAN DAIRY ROAD
LARGO, FLORIDA 34647
(813) 399-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
STACY J. KANTER, ESQ. ROHAN S. WEERASINGHE, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM SHEARMAN & STERLING
919 THIRD AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 735-3000 (212) 848-4000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: as soon as
practicable after the registration statement becomes effective.
------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
------------------------
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be
used in connection with a United States offering (the "U.S. Prospectus") and one
to be used in connection with a concurrent international offering (the
"International Prospectus"). The two prospectuses will be identical in all
respects except for the front cover page, the section entitled "Underwriting"
and the outside back cover page.
The form of the U.S. Prospectus is included herein and the form of the
front cover page, the "Underwriting" section and outside back cover page of the
International Prospectus are included following the back cover page of the U.S.
Prospectus as pages X-1 through X-5.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 20, 1994
PROSPECTUS
5,000,000 SHARES
[ECKERD CORPORATION LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby will be sold by certain
stockholders (the "Selling Stockholders") of Eckerd Corporation (the "Company").
See "Principal and Selling Stockholders." The Company will not receive any of
the proceeds from the sale of the shares offered hereby.
Of the 5,000,000 shares offered hereby, 4,000,000 shares are being offered
in the United States and Canada by the U.S. Underwriters (the "U.S. Offering")
and 1,000,000 shares are being offered in a concurrent offering outside the
United States and Canada by the International Underwriters (the "International
Offering" and together with the U.S. Offering, the "Offerings"). The price to
public and the underwriting discount per share will be identical for both
Offerings. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange under the symbol
"ECK." On April 19, 1994, the last reported sale price of the Common Stock on
the New York Stock Exchange was $20 1/8 per share. See "Price Range of Common
Stock and Dividend Policy."
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS."
------------------------
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 UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several U.S. Underwriters and the several International Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) The Company has agreed to pay certain expenses of the Offerings estimated at
$675,000.
(3) The Selling Stockholders have granted the U.S. Underwriters and the
International Underwriters 30-day options to purchase up to an aggregate of
600,000 and 150,000 additional shares of Common Stock, respectively, solely
to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholders will be $ , $ , and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of certificates for the shares of Common Stock will be made in New
York, New York on or about , 1994.
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO.
INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
------------------------
The date of this Prospectus is , 1994.
<PAGE>
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 LAWS OF ANY SUCH STATE.
<PAGE>
[Map and photos]
IN CONNECTION WITH THE OFFERINGS, THE U.S. UNDERWRITERS AND THE
INTERNATIONAL UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE
OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY OFFERED HEREBY
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. Unless the context indicates otherwise, all references in this
Prospectus to the "Company" include the Company's subsidiaries. All references
to fiscal years shall be determined with respect to the calendar year in which
the fiscal year begins. The Company's 1993, 1992, 1991 and 1990 fiscal years
included 52 weeks of operations, and the Company's 1989 fiscal year included 53
weeks of operations. Unless the context indicates otherwise, the information
contained in this Prospectus assumes that the over-allotment options granted by
the Selling Stockholders to the Underwriters have not been exercised.
THE COMPANY
Eckerd Corporation (the "Company" or "Eckerd") operates the Eckerd Drug
store chain, which is one of the five largest drug store chains in the United
States. At January 29, 1994, the Eckerd Drug store chain consisted of 1,718
stores in 13 states located primarily in the Sunbelt, including 550 stores in
Florida and 480 stores in Texas. Over its 40-year history, the Eckerd Drug
store chain has built a strong market position in areas where demographic
characteristics are favorable to drug store growth. The Company's stores are
concentrated in 10 of the 12 metropolitan statistical areas with the largest
percentage growth in population from 1980 to 1990, and, according to industry
sources, the Company ranks first or second in terms of drug store sales in 12
of the 14 major metropolitan markets in which it operates.
The primary focus of Eckerd Drug stores is the sale of prescription and
over-the-counter drugs. During fiscal 1993, the Company filled more than 81
million prescriptions, and sales of prescription and over-the-counter drugs
generated approximately 59% of the Company's drug store sales. During the period
from fiscal 1989 to fiscal 1993, the dollar volume of sales of prescription
drugs by the Company increased 55.4%.
The Company believes that its prescription and over-the-counter drug
business will continue to represent a significant portion of its sales and
profits due to the continued shift to managed health care in the United States,
the continued development of new drug products, the aging of the American
population and the location of many of the Company's stores in states which have
large concentrations of, and which are continuing to experience significant
growth in, the number of persons over age 65. According to industry studies,
persons over age 65 purchase twice as many prescription drugs and 50% more
over-the-counter drugs than the national average. Approximately 60% of the
Company's drug stores are located in Florida and Texas, two of the top three
states in terms of influx of persons over age 65.
Another significant focus of Eckerd Drug stores is photo finishing. The
Company is among the top three retail photo finishers in the United States, and
the Company believes that it is the leading source of photo finishing in all of
the major markets in which it operates. The Company processed over 28 million
rolls of film in its own photo labs in fiscal 1993 and has several well known
branded processing programs. The Company offers overnight photo finishing
services in all Eckerd Drug stores and operates Eckerd Express Photo centers,
which are one-hour photo finishing mini-labs. Eckerd Express Photo centers were
located in 413 Eckerd Drug stores at January 29, 1994. The Company currently
intends to continue to expand its one-hour photo finishing business, with a goal
of adding approximately 300 new Express Photo centers by 1998. The Company
believes that its photo finishing operations provide further opportunities for
growth in its drug store business due to both the direct contribution to sales
from photo finishing and the significant additional store traffic from such
operations, which is important in generating sales of other products.
3
<PAGE>
In addition to prescription and over-the-counter drugs and photo finishing
services, Eckerd Drug stores sell a wide variety of nonpharmacy merchandise,
including health and beauty aids, greeting cards and numerous other convenience
products. Eckerd-brand products, which are attractively priced and provide
higher margins than similar national brand products, represent a growing segment
of products offered by Eckerd Drug stores. Sales of private label products
accounted for $188.1 million of the Company's sales in fiscal 1993. In 1992 and
1993, the Company reallocated nonpharmacy shelf space within all of its stores,
resulting in, among other things, substantially increased store space devoted to
greeting cards, increased emphasis on health and beauty aids, and the
introduction of a food mart concept in selected locations. In addition, store
configurations and marketing programs have been altered so as to promote
increased store traffic and more closely conform to customer preferences.
While the Company believes that it competes primarily on the basis of
customer service and convenience, price is becoming an increasingly important
factor. In order to enhance its market share and long-term competitive position,
beginning in fiscal 1992, the Company phased in a program which involved
lowering prices on prescription drugs to non third-party customers. The Company
believes that its reduced prescription prices have resulted in it being more
aggressively priced than most other traditional drug stores in its markets and
have enhanced its competitive position with other shopping formats. The Company
also implemented a cost reduction program, which has focused upon decreasing
corporate and regional overhead expenses and has provided the Company the
flexibility to be more competitive in the marketplace through, among other
things, its competitive pricing program without decreasing the level of service
provided in its stores. The Company continues to actively evaluate cost savings
opportunities and has identified areas which are expected to contribute
additional cost reductions of approximately $18.0 million in fiscal 1994, with
most of such savings expected to be realized in the third and fourth quarters.
There can be no assurance, however, that these additional cost reductions will
be realized. See "Business--Business Strategy" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition--General--Cost
Reduction Program."
In light of the growth opportunities within the drug store industry, the
Company is focused upon maintaining and further enhancing its position within
this industry. This strategy involves maintaining a high level of customer
service and convenience, while continuing to evaluate opportunities to reduce
costs. In marketing its prescription products, the Company plans to continue to
offer competitive prices on its prescription sales to non third-party customers,
while maintaining its aggressive marketing program to third-party payors, such
as insurance companies, health maintenance organizations ("HMOs"), preferred
provider organizations ("PPOs") and other managed care providers and government
agencies. In terms of nonpharmacy products, the Company plans to continue to
actively assess opportunities to reallocate store space to certain products,
such as health and beauty aids and greeting cards and adding food marts, all of
which have higher sales and gross profit growth potential than other products
and which the Company believes increase customer traffic. In addition, the
Company plans to expand the number of stores within its existing market areas,
both through internal expansion and acquisitions, with a goal of opening or
acquiring up to 50 drug stores per year in fiscal 1994 and thereafter through
1997. With the drug store industry experiencing consolidation, the Company
believes that there will also be additional acquisition opportunities. The cash
costs associated with opening a drug store are estimated to be approximately
$455,000, which includes initial inventory costs of approximately $265,000.
There can be no assurance, however, that the Company will be able to open or
acquire such number of drug stores. In addition to such openings and
acquisitions, the Company expects to sell or close approximately 15 drug stores
per year in fiscal 1994 and thereafter through 1997. See "Business--Business
Strategy--Expansion and Acquisition."
The Company was formed in 1985 by Merrill Lynch Capital Partners, Inc.
("Merrill Lynch Capital Partners"), an affiliate of Merrill Lynch & Co., Inc.
("ML & Co."), for the purpose of acquiring the former Jack Eckerd Corporation
("Old Eckerd"), in April 1986 (the "Acquisition"). Merrill Lynch Capital
Partners formed EDS Holdings Inc. ("EDS") and its wholly owned subsidiary,
4
<PAGE>
Eckerd Holdings II, Inc. ("EH II"), to acquire certain additional drug stores in
July 1990. EH II owns 94 drug stores which were operated by the Company as
Eckerd Drug stores following their acquisition, from Revco D.S., Inc. and Revco
Discount Drug Centers, Inc. (together "Revco"), pursuant to a Management
Agreement dated as of July 13, 1990, as amended (the "EH II Management
Agreement"). On August 12, 1993, the Company completed an initial public
offering (the "IPO") in which it issued and sold 5,175,000 shares of Common
Stock for $14.00 per share. In connection with the consummation of the IPO, the
holders of EDS common stock exchanged their shares for shares of Common Stock.
Immediately thereafter, EDS was merged into Eckerd with EH II becoming a wholly
owned subsidiary of Eckerd and the EH II Management Agreement was terminated.
The acquisition of EDS by the Company was accounted for as a pooling of
interests and all references in this Prospectus to the "Company" for periods
prior to such acquisition mean the Company, EDS and their respective
subsidiaries. In connection with the IPO, the Company changed its name from
"Jack Eckerd Corporation" to "Eckerd Corporation." See "The 1993 Transactions."
None of the Company's stockholders sold any shares of Common Stock in the IPO.
THE 1993 TRANSACTIONS
On June 15, 1993, the Company consummated a series of transactions (the
"Refinancing") designed to simplify its capital structure, reduce interest
expense and dividend costs and provide additional financial flexibility. As part
of this refinancing, the Company entered into a $950.0 million senior secured
credit agreement with Chemical Bank and NationsBank of Florida, N.A., as
managing agents, and the financial institutions party thereto (the "Credit
Agreement"). The borrowings under the Credit Agreement, together with funds from
other available sources, were used to redeem a substantial amount of the
Company's indebtedness and the Company's 14 1/2% Cumulative Redeemable Preferred
Stock (the "14 1/2% Preferred Stock").
On August 12, 1993, the Company consummated the IPO and received net
proceeds of approximately $65.8 million. The net proceeds from the IPO were used
to reduce outstanding bank indebtedness under the Credit Agreement and the EH II
Credit Agreement (as defined under "The 1993 Transactions" below).
On November 2, 1993, the Company consummated the sale (the "Note Issuance")
of $200.0 million aggregate principal amount of 9 1/4% Senior Subordinated Notes
due 2004 (the "Notes"). The net proceeds from the Note Issuance were used to
redeem (i) the remaining $50.0 million aggregate principal amount of the
Discount Subordinated Debentures due May 1, 2006 of the Company (the "13%
Discount Debentures") and (ii) $145.0 million aggregate principal amount of the
11 1/8% Subordinated Debentures due 2001 of the Company (the "11 1/8%
Debentures"). See "The 1993 Transactions."
THE OFFERINGS
Common Stock Offered by the Selling Stockholders:
U.S. Offering..................................... 4,000,000 shares
International Offering............................ 1,000,000 shares
Total.......................................... 5,000,000 shares
Total Outstanding Common Stock(1)................... 31,642,902 shares
NYSE Symbol......................................... ECK
- ---------------
(1) The number of shares of Common Stock outstanding (i) includes 605,022 shares
of Non-Voting Common Stock (Series I), par value $.01 per share (the
"Non-Voting Common Stock"), which is convertible by the holder thereof at
any time into shares of Common Stock and (ii) excludes 1,407,004 shares
issuable upon exercise of outstanding employee stock options, 466,110 of
which are exercisable as of March 26, 1994 at an average exercise price of
$8.85 per share.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical financial data for the years and periods
presented below has been derived from the Company's consolidated financial
statements. The historical financial data for the three fiscal years ended
January 29, 1994 has been derived from, and should be read in conjunction with,
the Company's audited consolidated financial statements and related notes
included elsewhere in this Prospectus. The summary pro forma statement of
operations data presented below gives effect to the Refinancing, the IPO, the
Note Issuance and the use of the net proceeds therefrom as if such transactions
had occurred as of the beginning of the period presented. The summary pro forma
financial data does not purport to represent what the Company's results of
operations would actually have been if the Refinancing, the IPO and the Note
Issuance and the use of proceeds therefrom in fact had occurred at the beginning
of the period presented, or to project the Company's results of operations for
any future period. All information contained in the following tables should be
read in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the consolidated financial statements of
the Company and related notes included elsewhere in this Prospectus.
<TABLE><CAPTION>
FISCAL YEAR ENDED(1)
----------------------------------------------------------
JAN. 29, JAN. 30, FEB. 1, FEB. 2, FEB. 3,
1994(2) 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other operating revenue..................... $4,190,539 $3,887,027 $3,739,852 $3,456,134 $3,175,061
Gross profit(3)....................................... 1,015,164 990,548 1,001,307 928,590 891,239
Earnings before interest expenses..................... 157,184 135,383 147,098 111,327 135,399
Total interest expenses............................... 113,215 137,404 143,194 147,309 141,548
Earnings (loss) before extraordinary items............ 41,413 (4,885) 977 (35,982) (7,977)
Net earnings (loss) for the year(4)................... (2,941) (4,123) 2,657 (35,982) (6,149)
Net earnings (loss) available to common shares........ (7,865) (14,938) (8,166) (46,848) (17,205)
Earnings (loss) before extraordinary items per common
share (5)............................................... $ 1.24 $ (0.59) $ (0.38) $ (1.97) $ (0.87)
Net earnings (loss) per common share(6)............... (0.27) (0.56) (0.32) (1.97) (0.79)
OTHER OPERATING DATA:
EBITDA(7)............................................. $ 242,252 $ 229,217 $ 248,677 $ 235,687 $ 221,251
EBITDA Margin(8)...................................... 5.8% 5.9% 6.6% 6.8% 7.0%
LIFO charge(9)........................................ $ 8,500 $ 15,000 $ 21,000 $ 23,000 $ 21,500
Depreciation.......................................... 49,449 53,753 49,554 47,835 41,979
Amortization of intangibles
and expenses related to Acquisition and other(10)... 35,619 40,081 52,025 77,925 65,373
Capital expenditures.................................. 33,091 51,389 49,410 73,243 86,781
DRUG STORE DATA:
Drug stores open at end of period..................... 1,718 1,696 1,675 1,673 1,630
Comparable drug store sales growth.................... 6.1% 3.1% 5.7% 6.9% 6.1%
Average sales per drug store.......................... $ 2,365 $ 2,222 $ 2,142 $ 2,036 $ 1,887
Average sales per selling floor square foot........... 302 283 272 258 238
Prescription sales as a percentage of drug store
sales................................................... 48.3% 45.4% 44.0% 42.6% 40.3%
Prescription and over-the-counter sales as a
percentage of drug store sales...................... 59.0% 55.9% 54.7% 52.8% 51.5%
</TABLE>
<TABLE><CAPTION>
FISCAL YEAR ENDED
JAN. 29, 1994
-------------------
<S> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:(11)
Total interest expenses(12).................................................................. $ 95,209
Net earnings................................................................................. 57,424(13)
Net earnings available to common shares...................................................... 57,424(13)
Net earnings per common share(14)............................................................ 1.80
AS OF JAN. 29, 1994
-------------------
BALANCE SHEET DATA:
Working capital............................................................................ $ 306,588
Total assets............................................................................... 1,417,504
Long-term debt (including current installments)............................................ 954,891
Stockholders' deficit...................................................................... (179,022)
</TABLE>
(Footnotes on following page)
6
<PAGE>
(Footnotes for preceding page)
- ---------------
(1) Statement of operations data and other operating data for fiscal year ended
February 3, 1990 includes 53 weeks of operations. All other fiscal years
include 52 weeks of operations. The drug store data for the fiscal year
ended February 3, 1990 has been restated on the basis of a 52-week year for
purposes of comparability.
(2) The statement of operations data and other operating data for the fiscal
year ended January 29, 1994 reflect the results of (i) the Refinancing from
June 15, 1993 (except for the redemption of certain indebtedness and the 14
1/2% Preferred Stock, which occurred on July 15, 1993 and is reflected from
such date), (ii) the IPO from August 12, 1993 and (iii) the Note Issuance
from November 2, 1993 (except for the redemption of the 13% Discount
Debentures and the 11 1/8% Debentures, which occurred on December 2, 1993
and is reflected from such date). See "The 1993 Transactions."
(3) Gross profit represents sales and other operating revenue less cost of
sales, including store occupancy, warehousing and delivery expense.
(4) Reflects extraordinary item of $762 in fiscal 1992, $1,680 in fiscal 1991
and $1,828 in fiscal 1989, relating to the tax effect of utilization of net
operating loss carryforwards and extraordinary loss net of taxes of $44,354
in fiscal 1993 relating to the early retirement of debt and preferred
stock.
(5) Reflects payment of preferred stock dividends of $4,924 in fiscal 1993,
$10,815 in fiscal 1992, $10,823 in fiscal 1991, $10,866 in fiscal 1990 and
$11,056 in fiscal 1989.
(6) Net earnings (loss) per common share was calculated on the basis of
29,392,805, 26,573,902, 25,677,103, 23,793,496 and 21,764,865 weighted
average shares of Common Stock outstanding for fiscal 1993, 1992, 1991,
1990 and 1989, respectively.
(7) EBITDA means earnings before interest, taxes, depreciation, amortization of
intangibles and expenses related to Acquisition and other and, for fiscal
1989 and 1990, the reversal of the inventory valuation reserve established
in fiscal 1986 in connection with the Acquisition. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--General--Impact of Non Cash and Non Recurring Charges." The
Company believes that EBITDA is the most relevant measure of its operating
results because of the significant amount of charges resulting from the
Acquisition and other transactions which are non cash and/or non recurring.
However, EBITDA should not be considered in isolation or as a substitute
for net earnings and other statement of operations data prepared in
accordance with generally accepted accounting principles as a measure of
the Company's profitability or liquidity.
(8) EBITDA Margin means EBITDA as a percentage of sales and other operating
revenue.
(9) LIFO charge for fiscal 1989 and 1990 is before the reversal of the
inventory valuation reserve established in fiscal 1986 in connection with
the Acquisition. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--General--Impact of Non Cash and Non
Recurring Charges--Reversal of Inventory Valuation Reserve."
(10) Includes amortization of assets written up as a result of the Acquisition,
including goodwill, and charges due to certain performance-related
management compensation programs. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--General--Impact
of Non Cash and Non Recurring Charges."
(11) The pro forma statement of operations data reflects the Refinancing, the
IPO, the Note Issuance and the use of the net proceeds as if such
transactions had occurred as of the beginning of the period presented. See
"Pro Forma Financial Data."
(12) Pro forma interest expense was computed assuming a rate of 7 1/2% under the
Credit Agreement and the EH II Credit Agreement for all periods.
(13) Does not reflect the extraordinary item of $44.4 million (net of income tax
benefit of $0.9 million) which was recognized as a result of the repayment
of existing indebtedness and redemption of the 14 1/2% Preferred Stock and
consisted of prepayment penalties and fees for certain consents and waivers
of $14.5 million, the write offs of unamortized deferred debt expense of
$19.0 million, additional amortization of original issue discount of $11.0
million and costs associated with the early extinguishment of debt of $0.8
million.
(14) The pro forma statement of operations data assumes 31,980,305 weighted
average shares of Common Stock outstanding for the fiscal year ended
January 29, 1994.
7
<PAGE>
THE COMPANY
GENERAL
The Company operates the Eckerd Drug store chain, which is one of the five
largest drug store chains in the United States. At January 29, 1994, the Eckerd
Drug store chain consisted of 1,718 stores in 13 states located primarily in the
Sunbelt, including 550 stores in Florida and 480 stores in Texas. Over its
40-year history, the Eckerd Drug store chain has built a strong market position
in areas where demographic characteristics are favorable to drug store growth.
The Company's stores are concentrated in 10 of the 12 metropolitan statistical
areas with the largest percentage growth in population from 1980 to 1990, and,
according to industry sources, the Company ranks first or second in terms of
drug store sales in 12 of the 14 major metropolitan markets in which it
operates.
The primary focus of Eckerd Drug stores is the sale of prescription and
over-the-counter drugs. During fiscal 1993, the Company filled more than 81
million prescriptions, and sales of prescription and over-the-counter drugs
generated approximately 59% of the Company's drug store sales. During the period
from fiscal 1989 to fiscal 1993, the dollar volume of sales of prescription
drugs by the Company increased 55.4%.
Another significant focus of Eckerd Drug stores is photo finishing. The
Company is among the top three retail photo finishers in the United States, and
the Company believes that it is the leading source of photo finishing in all of
the major markets in which it operates. The Company processed over 28 million
rolls of film in its own photo labs in fiscal 1993 and has several well known
branded processing programs.
The Company was formed in 1985 by Merrill Lynch Capital Partners for the
purpose of effecting the Acquisition. Prior to the Acquisition in April 1986,
the Company had no activities other than those connected to the Acquisition. The
stockholders of the Company include (i) certain partnerships affiliated with
Merrill Lynch Capital Partners, (ii) certain other affiliates of ML & Co. ((i)
and (ii), collectively, the "Merrill Lynch Investors"), (iii) approximately 25
members of management (the "Management Investors"), (iv) the Company's
Employees' Profit Sharing Plan and (v) certain affiliates of the banks which
provided part of the financing for the Acquisition and other institutional
investors. As of March 26, 1994, the Merrill Lynch Investors owned approximately
14,697,104 shares, or 46.45%, of the Common Stock, and the Management Investors
owned approximately 1,997,407 shares, or 6.31%, of the Common Stock. Upon
consummation of the Offerings, the Merrill Lynch Investors will own 11,885,959
shares, or 37.56%, of the Common Stock (approximately 36.23% if the
over-allotment options are exercised in full). The Management Investors are not
selling any shares of Common Stock in the Offerings. See "Principal and Selling
Stockholders."
The Company was incorporated in Delaware in 1985. The Company's principal
executive offices are located at 8333 Bryan Dairy Road, Largo, Florida 34647;
telephone number (813) 399-6000.
RISK FACTORS
Prior to making an investment decision, prospective purchasers of Common
Stock should carefully consider all of the information contained in this
Prospectus, and, in particular, should evaluate the following risk factors.
SUBSTANTIAL INDEBTEDNESS
As a result of the Acquisition, the related financing and refinancings
thereof, the Company is highly leveraged. At January 29, 1994, the Company had
long-term debt (including current maturities) of approximately $954.9 million
and a stockholders' deficit of approximately $179.0 million. See
"Capitalization." The Company may incur additional indebtedness in the future,
including (i) unused
8
<PAGE>
and available borrowing commitments under the revolving credit facility portion
of the Credit Agreement of $223.9 million on January 29, 1994 and (ii) up to an
additional $150.0 million aggregate principal amount of debt securities (the
"Debt Securities") which are registered pursuant to an effective shelf
registration statement, subject in all cases to certain restrictions contained
in the Credit Agreement, the Notes and the Company's other debt instruments. See
"--Restrictions Imposed by Terms of the Company's Indebtedness." As of March 26,
1994, the Company had borrowed an additional $137.5 million under the revolving
credit facility portion of the Credit Agreement.
The ability of the Company to make cash payments to satisfy its substantial
indebtedness will depend upon its future operating performance, which is subject
to prevailing economic conditions, and to financial, business and other factors
beyond the Company's control. Based upon the Company's ability to generate cash
flow from operating activities, the available unused portion of the working
capital revolving loans under the Credit Agreement and other existing financing
sources, the Company believes that it will have the funds necessary to meet the
principal and interest payments on its debt as they become due and to operate
and expand its businesses. However, there can be no assurance that the Company
will be able to do so. If the Company is unable to generate sufficient earnings
and cash flow to meet its obligations with respect to its outstanding
indebtedness, refinancing of certain of these debt obligations or asset
dispositions might be required. In the event debt refinancing is required, there
can be no assurance that the Company can effect such refinancing on satisfactory
terms or that the refinancing will be permitted by the lenders under the Credit
Agreement, by the terms of the Notes or by the other creditors of the Company.
In addition, asset dispositions may be made under circumstances which might not
be favorable to realizing the best price for such assets. Moreover, there can be
no assurance that assets can be sold promptly enough, or for amounts sufficient
to satisfy outstanding debt obligations. The Credit Agreement and the Notes
contain certain restrictions on the Company's ability to sell assets and on the
use of proceeds from permitted asset sales. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Liquidity and Capital
Resources." For information regarding restrictions on debt refinancing and asset
dispositions, see "Description of Certain Indebtedness."
While the Refinancing, the IPO and the Note Issuance have improved the
Company's financial flexibility, the substantial interest and principal payment
requirements on borrowings under the Credit Agreement, the Notes and the
Company's other indebtedness could have important consequences to holders of
Common Stock, including (i) limiting the Company's ability to effect future
financings and otherwise restricting corporate activities, including the
Company's ability to respond to market conditions, to provide for capital
expenditures or to take advantage of acquisition opportunities and (ii) reducing
the funds available to the Company for its operations. The Credit Agreement, the
Notes and certain other financing agreements impose other operating and
financial restrictions on the Company, the failure to comply with which may
result in an event of default which, if not cured or waived, would have a
material adverse effect on the Company. See"--Restrictions Imposed by Terms of
the Company's Indebtedness."
All of the Company's indebtedness under the Credit Agreement is at variable
rates of interest, causing the Company to be sensitive to prevailing interest
rates. As required by the Credit Agreement, the Company has entered into certain
interest rate protection agreements with respect to $200.0 million of its
floating rate exposure. Such interest rate protection agreements will remain in
full force and effect through August 1996. At January 29, 1994, the Company had
an additional $371.7 million of borrowings under the Credit Agreement ($509.2
million at March 26, 1994), which are at variable rates of interest. To the
extent interest rates rise, the Company's ability to pay principal and interest
on borrowings under the Credit Agreement and its other indebtedness could be
adversely affected. See "Description of Certain Indebtedness--The Credit
Agreement."
9
<PAGE>
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the Credit Agreement and the indenture pursuant
to which the Notes were issued (the "Notes Indenture") impose restrictions that
affect, among other things, the ability of the Company and its subsidiaries to
incur debt, pay dividends, make acquisitions, create liens and make capital
expenditures. See "Description of Certain Indebtedness--The Credit Agreement"
and "--The Notes." The Credit Agreement also requires the Company to satisfy
certain financial covenants on a quarterly basis. The ability of the Company to
comply with such financial covenants can be affected by events beyond the
Company's control, and there can be no assurance that the Company will achieve
operating results that will comply with such covenants. A breach of any of these
covenants could result in a default under the Credit Agreement and other
indebtedness of the Company. The lenders under the Credit Agreement could elect
to declare all amounts borrowed thereunder, together with accrued interest, to
be due and payable. If the Credit Agreement indebtedness were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay in full such Credit Agreement indebtedness and the other indebtedness of
the Company.
COMPETITION
The Company operates in highly competitive industries. In addition to
traditional competition from independent drug stores and other drug store
chains, Eckerd Drug stores face competition from mass merchants (including
discounters and deep discounters), supermarkets, combination food and drug
stores, mail order distributors, hospitals and HMOs and other managed care
providers. These other formats have experienced significant growth in their
market share of the prescription and over-the-counter drug business. Many of
these competitors have greater financial resources than the Company. The Company
competes with these competitors primarily on the basis of customer service,
convenience and price. Beginning in fiscal 1992, the Company phased in a program
of lowering prices to compete more aggressively with these competitors. See
"Business--Business Strategy--Competitive Pricing" and "Business--Business
Strategy--Competition."
SALES TO THIRD PARTY PAYORS
A growing percentage of the Company's prescription drug volume has been
accounted for by sales to customers who are covered by third-party payment
programs. Third-party prescription sales accounted for approximately 58.0%,
49.6%, 43.1%, 36.0% and 30.7% of the Company's prescription sales in fiscal
1993, fiscal 1992, fiscal 1991, fiscal 1990 and fiscal 1989, respectively.
Prescription sales to third-party payors, in terms of both dollar volume and as
a percentage of total prescription sales, continued to increase in fiscal 1993,
and the Company expects this trend to continue. Although contracts with
third-party payors may increase the volume of prescription sales and gross
profits, third-party payors typically negotiate lower prescription prices than
those on non third-party prescriptions. Accordingly, there has been downward
pressure on gross profit margins on sales of prescription drugs which is
expected to continue in future periods. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Business--The
Drug Store Industry."
PRESCRIPTION DRUG SALES AND FUTURE REGULATION
The Company relies on prescription drug sales for a significant portion of
its revenues and profits, and prescription drug sales represent a growing
segment of the Company's business. Prescription drug sales accounted for
approximately 48.3%, 45.4%, 44.0%, 42.6% and 40.3% of the Company's drug store
sales for fiscal 1993, fiscal 1992, fiscal 1991, fiscal 1990 and fiscal 1989,
respectively. These revenues are affected by changes within the health care
industry, including changes in programs providing for reimbursement of the cost
of prescription drugs by third-party payors, such as government and private
sources, and regulatory changes relating to the approval process for
prescription drugs. The Clinton Administration has stated that health care
reform is one of its top priorities, and a governmental task
10
<PAGE>
force was appointed to prepare recommendations as to changes which should be
implemented. President Clinton's plan for health care reform was outlined
broadly to Congress on September 22, 1993 and was subsequently introduced as
legislation on November 23, 1993. The President's plan is currently being
considered by several committees of Congress. The goal of the President's plan,
which would be phased in from 1995 through 1997, is to guarantee comprehensive
health coverage (including prescription drugs) for all Americans regardless of
health or employment status through a system of regional and corporate health
alliances that are expected to promote competition and maintain quality, service
and price. Under President Clinton's plan, all employers would be required to
pay at least 80% of the coverage for their employees, and an independent
national supervisory board would be established to implement and enforce the
national budget for health care spending, with the power, among others, to
investigate the prices of new drugs that represent a breakthrough over existing
therapies. In addition, under the Clinton health care reform plan, benefits
offered under the Medicare program would be expanded to cover prescription drugs
on an outpatient basis, and discriminatory pricing by prescription drug
manufacturers based on "class of trade" (e.g., hospitals, mail order pharmacies,
HMOs) would be eliminated. A number of competing health care reform proposals
have been introduced in Congress and others are expected to be introduced in the
future. President Clinton's proposals to expand prescription drug coverage to
all Americans, including those covered by the Medicare program, and to eliminate
discriminatory pricing by prescription drug manufacturers may not be included in
any of the other health care reform proposals. The Company cannot predict the
outcome of the Clinton health care reform plan or of any other reform
initiatives or the impact thereof on the Company's financial position or results
of operations. Health care reform, if implemented, could adversely affect the
pricing of prescription drugs or the amount of reimbursement from governmental
agencies and third-party payors, and consequently could be adverse to the
Company. However, to the extent health care reform expands the number of persons
receiving health care benefits covering the purchase of prescription drugs, it
would also result in increased purchases of such drugs and could thereby have a
favorable impact on both the Company and the retail drug industry in general.
Nevertheless, there can be no assurance that any such future legislation or any
similar legislation adopted by any states in which the Company operates will not
adversely affect the Company or the retail drug store industry generally. See
"Business--Regulation."
PRINCIPAL STOCKHOLDERS
Upon completion of the Offerings, the Merrill Lynch Investors will own
approximately 37.56% of the outstanding shares of Common Stock (approximately
36.23% if the over-allotment options are exercised in full) and the Management
Investors will own approximately 6.31% of the outstanding shares of Common
Stock. As a result of such stock ownership, if the Merrill Lynch Investors and
the Management Investors were to vote together, they would likely continue to be
in a position to elect the Board of Directors of the Company, to approve or
disapprove of other matters requiring stockholder approval and to effectively
control the affairs and policies of the Company. The Merrill Lynch Investors are
affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), one of the representatives of the U.S. Underwriters, and Merrill Lynch
International Limited, one of the representatives of the International
Underwriters. In addition, certain provisions of the Company's Certificate of
Incorporation and By-laws could make more difficult non-negotiated acquisitions
of the Company. These provisions include a staggered board of directors,
limitation on actions by written consent of stockholders and advance notice
procedures for nominations of directors and other stockholder proposals. See
"Principal and Selling Stockholders" and "Description of Capital Stock--
Certificate of Incorporation and By-laws."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, approximately 31,642,902 shares of Common
Stock will be outstanding (including all of the shares of Common Stock sold in
the Offerings). All of the shares sold in the Offerings, together with the
5,175,000 shares of Common Stock sold in the IPO and the
11
<PAGE>
1,407,004 shares of Common Stock issued upon exercise of options granted
pursuant to the 1993 Stock Option and Incentive Plan, will be freely
transferable without restriction under the Securities Act of 1933, as amended
(the "Securities Act"), unless held by an affiliate of the Company. The
remaining outstanding shares of Common Stock held by existing stockholders will
be "restricted securities" of the Company within the meaning of Rule 144 under
the Securities Act and may not be sold unless they are registered under the
Securities Act or sold pursuant to an exemption from registration thereunder,
including the exemption contained in Rule 144, which contains certain volume and
other resale limitations. Pursuant to Rule 144(k), however, a person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of the
Company at the time of sale and has not been an affiliate during the three
months immediately preceding the sale may sell such shares without regard to
such volume and other resale limitations of Rule 144 provided that a period of
at least three years has elapsed since the later of the date the securities were
acquired from the issuer or from an affiliate of the issuer.
The Merrill Lynch Investors, the Management Investors and the other
existing stockholders of the Company and EDS were granted rights entitling them,
under specified circumstances, to cause the Company to register for sale all or
part of their shares of Common Stock and to include such shares in any
registered public offerings of Common Stock by the Company. The Company is
effecting the Offerings pursuant to the exercise by the Merrill Lynch Investors
and the other Selling Stockholders of their demand registration rights under the
Registration Rights Agreement (as defined). See "Description of Capital
Stock--Registration Rights."
Pursuant to the Registration Rights Agreement, each holder of at least 1%
of the outstanding shares of Common Stock who is a party thereto has agreed for
a period beginning seven days before, and ending 120 days after, the effective
date of the Registration Statement of which this Prospectus is a part, not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of Common Stock or any securities convertible into or
exchangeable for Common Stock, or any rights or warrants to acquire Common
Stock. Approximately 54.22% of the shares of Common Stock outstanding upon
consummation of the Offerings will be subject to such provision. In addition,
each of the Company and the executive officers and directors of the Company will
agree, for a period of 90 days after the effective date of the Registration
Statement of which this Prospectus is a part, not to sell or otherwise dispose
of any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, or any rights or warrants to acquire Common Stock
without the prior written consent of the Representatives of the Underwriters.
No prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of Common Stock for future sale will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock (including shares issued upon exercise of
employee stock options) in the public market following the Offerings, or the
perception that such sales could occur, could adversely affect prevailing market
prices of the Common Stock.
Future sales of Common Stock could also affect the Company's ability to use
its net operating loss carryovers. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Tax Net Operating Loss
Carryforwards."
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange under the symbol
"ECK." The following table sets forth on a per share basis, for the periods
indicated, the high and low sales prices of the Common Stock as reported by the
New York Stock Exchange. The Common Stock was not publicly traded, and no
dividends were paid on the Common Stock, prior to the completion of the IPO on
August 12, 1993.
PRICE RANGE
--------------------
HIGH LOW
--------- ---------
FISCAL 1993:
Third Quarter (from August 6, 1993).................. $ 18.00 $ 12.75
Fourth Quarter....................................... 20.75 13.75
FISCAL 1994:
First Quarter (through April 19, 1994)................ 24.00 18.50
A recent closing sale price as reported on the New York Stock Exchange is
set forth on the cover page of this Prospectus.
The Company has never paid dividends on its Common Stock and does not
intend to pay dividends i8n the foreseeable future. The payment of dividends by
the Company is subject to restrictions under certain of its financing
agreements, including the Credit Agreement and the Notes Indenture. See
"Description of Certain Indebtedness." Any determination to pay cash dividends
in the future will be at the discretion of the Company's Board of Directors and
will be dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant at that time by the
Company's Board of Directors.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at January
29, 1994. The table should be read in conjunction with the Company's
consolidated financial statements included elsewhere in this Prospectus. The
Company will not receive any of the proceeds from the sale of the shares of
Common Stock in the Offerings.
AS OF JANUARY 29, 1994
----------------------
(DOLLARS IN THOUSANDS)
Total long-term debt (including current installments):
Credit Agreement
Tranche A term loans.............................. $ 429,948
Tranche B term loans.............................. 141,741
Revolving loans and bankers' acceptances.......... 4,500
Notes................................................ 200,000
11 1/8% Debentures................................... 134,557
Variable rate demand industrial revenue bonds........ 18,250
Other (principally notes secured by fixtures
and equipment)..................................... 25,895
----------------------
Total long-term debt (including current
installments)................................. 954,891
----------------------
Stockholders' equity (deficit):
Common stock......................................... 316
Capital in excess of par value....................... 225,560
Retained deficit..................................... (404,898)
----------------------
Total common stockholders' deficit................ (179,022)
----------------------
Total capitalization................................... $ 775,869
----------------------
----------------------
14
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following historical selected financial data for the years and periods
presented below has been derived from the Company's consolidated financial
statements. The historical financial data for the three fiscal years ended
January 29, 1994 has been derived from, and should be read in conjunction with,
the Company's audited consolidated financial statements and related notes
included elsewhere in this Prospectus. All information contained in the
following tables should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the consolidated
financial statements of the Company and related notes included elsewhere in this
Prospectus.
<TABLE><CAPTION>
FISCAL YEAR ENDED(1)
---------------------------------------------------------------
JAN. 29, JAN. 30, FEB. 1, FEB. 2, FEB. 3,
1994(2) 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other operating revenue.............................. $ 4,190,539 $ 3,887,027 $ 3,739,852 $ 3,456,134 $ 3,175,061
Cost of sales, including store occupancy, warehousing, and
delivery expense............................................. 3,175,375 2,896,479 2,738,545 2,527,544 2,283,822
----------- ----------- ----------- ----------- -----------
Gross profit................................................... 1,015,164 990,548 1,001,307 928,590 891,239
Operating and administrative expenses.......................... 857,980 855,165 854,209 817,263 755,840
----------- ----------- ----------- ----------- -----------
Earnings before interest expenses.............................. 157,184 135,383 147,098 111,327 135,399
Total interest expenses........................................ 113,215 137,404 143,194 147,309 141,548
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes and extraordinary items.... 43,969 (2,021) 3,904 (35,982) (6,149)
Income tax provision........................................... 2,556 2,864 2,927 -- 1,828
----------- ----------- ----------- ----------- -----------
Earnings (loss) before extraordinary items..................... 41,413 (4,885) 977 (35,982) (7,977)
Extraordinary item--early retirement of debt and preferred
stock, net of tax benefit.................................... (44,354) -- -- -- --
Extraordinary item--tax effect of utilization of net operating
loss carryforward............................................ -- 762 1,680 -- 1,828
----------- ----------- ----------- ----------- -----------
Net earnings (loss) for the year............................... $ (2,941) $ (4,123) $ 2,657 $ (35,982) $ (6,149)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net earnings (loss) available to common shares................. $ (7,865) $ (14,938) $ (8,166) $ (46,848) $ (17,205)
Earnings (loss) before extraordinary items per common share
(3).......................................................... $ 1.24 $ (0.59) $ (0.38) $ (1.97) $ (0.87)
Net earnings (loss) per common share(4)........................ (0.27) (0.56) (0.32) (1.97) (0.79)
OTHER OPERATING DATA:
EBITDA(5)...................................................... $ 242,252 $ 229,217 $ 248,677 $ 235,687 $ 221,251
EBITDA Margin(6)............................................... 5.8% 5.9% 6.6% 6.8% 7.0%
LIFO charge(7)................................................. $ 8,500 $ 15,000 $ 21,000 $ 23,000 $ 21,500
Depreciation................................................... 49,449 53,753 49,554 47,835 41,979
Amortization of intangibles and expenses related to Acquisition
and other(8)................................................. 35,619 40,081 52,025 77,925 65,373
Capital expenditures........................................... 33,091 51,389 49,410 73,243 86,781
DRUG STORE DATA:
Stores open at end of period................................... 1,718 1,696 1,675 1,673 1,630
Comparable drug store sales growth............................. 6.1% 3.1% 5.7% 6.9% 6.1%
Average sales per store........................................ $ 2,365 $ 2,222 $ 2,142 $ 2,036 $ 1,887
Average sales per selling floor square foot.................... 302 283 272 258 238
Prescription sales as a percentage of drug store sales......... 48.3% 45.4% 44.0% 42.6% 40.3%
Prescription and over-the-counter sales as a percentage of drug
store sales.................................................. 59.0% 55.9% 54.7% 52.8% 51.5%
BALANCE SHEET DATA:
Working capital................................................ $ 306,588 $ 367,027 $ 328,617 $ 347,775 $ 175,009
Total assets................................................... 1,417,504 1,418,922 1,412,249 1,443,167 1,392,987
Long-term debt (including current installments)................ 954,891 1,048,222 1,023,106 1,084,088 1,078,826
Preferred stock................................................ -- 75,000 75,000 75,000 75,000
Stockholders' deficit.......................................... (179,022) (243,291) (228,353) (220,187) (208,339)
</TABLE>
(Footnotes on following page)
15
<PAGE>
(Footnotes for preceding page)
- ---------------
(1) Statement of operations data and other operating data for fiscal year ended
February 3, 1990 includes 53 weeks of operations. All other fiscal years
include 52 weeks of operations. The drug store data for fiscal year ended
February 3, 1990 has been restated on the basis of a 52-week year for
purposes of comparability.
(2) The statement of operations data and other operating data for the fiscal
year ended January 29, 1994 reflect the results of (i) the Refinancing from
June 15, 1993 (except for the redemption of the Floating Rate Notes, 13%
Fixed Rate Notes, 13% Discount Debentures and 14 1/2% Preferred Stock (as
such terms are defined in "The 1993 Transactions"), which occurred on July
15, 1993 and is reflected from such date), (ii) the IPO from August 12, 1993
and (iii) the Note Issuance from November 2, 1993 (except for the redemption
of the 13% Discount Debentures and the 11 1/8% Debentures, which occurred on
December 2, 1993 and is reflected from such date). See "The 1993
Transactions."
(3) Reflects payment of preferred stock dividends of $4,924 in fiscal 1993,
$10,815 in fiscal 1992, $10,823 in fiscal 1991, $10,866 in fiscal 1990 and
$11,056 in fiscal 1989.
(4) Net earnings (loss) per common share was calculated on the basis of
29,392,805, 26,573,902, 25,677,103, 23,793,496 and 21,764,865 weighted
average shares of Common Stock outstanding for fiscal 1993, 1992, 1991, 1990
and 1989, respectively.
(5) EBITDA means earnings before interest, taxes, depreciation, amortization of
intangibles and expenses related to Acquisition and other and, for fiscal
1989 and 1990, the reversal of the inventory valuation reserve established
in fiscal 1986 in connection with the Acquisition. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--General--Impact of Non Cash and Non Recurring Charges." The
Company believes that EBITDA is the most relevant measure of its operating
results because of the significant amount of charges resulting from the
Acquisition and other transactions which are non-cash and/or non-recurring.
However, EBITDA should not be considered in isolation or as a substitute for
net earnings and other statement of operations data prepared in accordance
with generally accepted accounting principles as a measure of the Company's
profitability or liquidity.
(6) EBITDA Margin means EBITDA as a percentage of sales and other operating
revenue.
(7) LIFO charge for fiscal 1989 and 1990 is before the reversal of the inventory
valuation reserve established in fiscal 1986 in connection with the
Acquisition. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition--General-- Impact of Non Cash and Non
Recurring Charges--Reversal of Inventory Valuation Reserve."
(8) Includes amortization of assets written up as a result of the Acquisition,
including goodwill, and charges due to certain performance related
management compensation programs. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition--General--Impact of Non
Cash and Non Recurring Charges."
16
<PAGE>
THE 1993 TRANSACTIONS
THE REFINANCING
On June 15, 1993, the Company consummated the Refinancing, which was
designed to simplify its capital structure, reduce interest expense and dividend
costs and provide additional financial flexibility. The Company entered into the
Credit Agreement, which provides for (a) a $650.0 million term loan facility
(the "Senior Term Loans") consisting of a six-year amortizing Tranche A term
loan facility of $500.0 million (the "Tranche A Term Loans") and a seven-year
amortizing Tranche B term loan facility of $150.0 million (the "Tranche B Term
Loans") and (b) a $300.0 million six-year revolving credit facility (a portion
of which is available as a swingline loan facility and as a letter of credit and
bankers' acceptance facility) (the "Revolving Loans"). The Company also entered
into a sale and leaseback arrangement with Imaging Financial Services, Inc. (the
"IFS Sale and Leaseback") relating to approximately $35.0 million of photo
processing equipment. In addition, Eckerd, EDS and EH II amended the EH II
Management Agreement to provide for the payment by EH II to Eckerd of $40.0
million, of which approximately $22.0 million represented payment by EH II of
the management fee and interest thereon which was accrued and previously
deferred and approximately $18.0 million represented prepayment by EH II of the
management fee to be earned by the Company in the future, which prepayment was
evidenced by an unsecured promissory note (the "EH II Note"). EH II obtained the
funds necessary for such payments from cash generated by its operations and from
borrowings of approximately $31.6 million under a new revolving credit and term
loan agreement dated as of June 7, 1993 (the "EH II Credit Agreement") (the
borrowings under the Credit Agreement, the consummation of the IFS Sale and
Leaseback, the amendment to the EH II Management Agreement, including Eckerd's
obligations under the EH II Note, borrowings under the EH II Credit Agreement,
and the application of the proceeds therefrom, are collectively referred to as
the "Refinancing"). For a more detailed description of the Credit Agreement and
the IFS Sale and Leaseback, see "Description of Certain Indebtedness."
The net proceeds from the Refinancing were used to pay, prepay or redeem
(i) borrowings outstanding under the Company's prior Credit Agreement, dated as
99of July 13, 1990, as amended, with Morgan Guaranty Trust Company of New York
and the other lenders party thereto (the "Old Credit Agreement"), which
consisted of a revolving credit facility and a term loan facility, (ii) the
11.39% Senior Notes due January 31, 1995 of the Company (the "11.39% Senior
Notes"), at a prepayment price of 100% of the principal amount thereof plus
a make-whole amount, (iii) the 11.75% Senior Notes due April 15, 1995 of the
Company (the "11.75% Senior Notes"), at a prepayment price of 105% of the
principal amount thereof, (iv) the Senior Secured Floating Rate Notes due
April 15, 1997 of the Company (the "Floating Rate Notes"), at a redemption
price of 101% of the principal amount thereof, (v) the 13% Senior Secured
Fixed Rate Notes due April 15, 1997 of the Company (the "13% Fixed Rate
Notes"), at a redemption price of 106.6% of the principal amount thereof,
(vi) the 13% Discount Debentures, at a redemption price of 100% of the
principal amount thereof (except for the $50.0 million aggregate principal
amount of 13% Discount Debentures which was subsequently redeemed with the
net proceeds from the Note Issuance) and (vii) the 14 1/2% Preferred Stock,
at a redemption price of $1,000 per share plus a redemption premium of
$48.30 per share.
THE IPO AND RELATED TRANSACTIONS AND THE NOTE ISSUANCE
On August 12, 1993, the Company consummated the IPO and certain related
transactions. Immediately prior to the consummation of the IPO, the stockholders
of EDS (which included certain of the Merrill Lynch Investors, certain of the
Management Investors and certain of the Selling Stockholders) exchanged their
shares of EDS common stock for shares of Class A common stock of the Company.
EDS was subsequently merged into the Company with EH II becoming a wholly owned
subsidiary of the Company, and the EH II Management Agreement was terminated
upon consummation of the IPO. In connection with the IPO the Company also
amended its Restated Certificate of Incorporation to effect, among other things,
(i) the reclassification of its Class A common stock and Class B common stock
into Common Stock at
17
<PAGE>
certain specified rates, (ii) a 2-for-3 reverse stock split (the "Stock Split"),
(iii) the adoption of certain provisions such as a classified board of directors
and the prohibition of stockholder action by written consent, which could make
non-negotiated acquisitions of the Company more difficult and (iv) the change of
the Company's name from "Jack Eckerd Corporation" to "Eckerd Corporation." Of
the approximately $65.8 million of net proceeds of the IPO, the Company used
approximately $30.0 million to repay all borrowings outstanding under the EH II
Credit Agreement and the balance to repay borrowings under the Credit Agreement
consisting of Tranche A Term Loans of $27.5 million and Tranche B Term Loans of
$8.3 million.
On November 2, 1993, the Company consummated the Note Issuance. The net
proceeds from the Note Issuance were used to redeem (i) the remaining $50.0
million aggregate principal amount of the 13% Discount Debentures and (ii)
$145.0 million aggregate principal amount of the 11 1/8% Debentures.
The following table illustrates the sources and uses of funds in the
Refinancing, the IPO and the Note Issuance.
(Dollars in millions)
SOURCES OF FUNDS:
Credit Agreement
Tranche A Term Loans....................................... $ 500
Tranche B Term Loans....................................... 150
Revolving Loans............................................ 70
EH II Management Agreement.................................... 40
IFS Sale and Leaseback........................................ 35
IPO........................................................... 66
Note Issuance................................................. 195
---------
$ 1,056
---------
---------
USE OF FUNDS:
Old Credit Agreement
Term loans.................................................. $ 25
Revolving credit facility................................... 125
Credit Agreement
Tranche A Term Loans........................................ 28
Tranche B Term Loans........................................ 8
EH II Credit Agreement......................................... 30
11.39% Senior Notes............................................ 50
11.75% Senior Notes............................................ 45
Floating Rate Notes............................................ 78
13% Fixed Rate Notes........................................... 45
13% Discount Debentures........................................ 345
11 1/8% Debentures............................................. 145
14 1/2% Preferred Stock........................................ 75
Accrued interest and prepayment premiums....................... 20
Transaction expenses........................................... 37
---------
$ 1,056
---------
---------
18
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data of the Company is based on
the historical consolidated financial statements of the Company included
elsewhere in this Prospectus, adjusted to give effect to the Refinancing, the
IPO and the Note Issuance and the use of net proceeds therefrom. The unaudited
pro forma statement of operations data for the year ended January 29, 1994 give
effect to the Refinancing, the IPO and the Note Issuance and the use of proceeds
therefrom as if such transactions had occurred as of the beginning of the period
presented. The adjustments relating to the Refinancing, the IPO and the Note
Issuance are described in the accompanying notes. The pro forma adjustments are
based upon available information and certain assumptions that management of the
Company believes are reasonable. The pro forma financial data does not purport
to represent what the Company's results of operations would actually have been
if the Refinancing, the IPO and the Note Issuance and the use of proceeds
therefrom in fact had occurred at the beginning of the period presented, or to
project the Company's results of operations for any future period. The pro forma
financial data should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the historical
consolidated financial statements of the Company and related notes included
elsewhere in this Prospectus.
FISCAL YEAR ENDED JANUARY 29, 1994
-------------------------------------
REFINANCING,
IPO AND
NOTE
ACTUAL ISSUANCE PRO FORMA
---------- ----------- ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
DATA:
Sales and other operating
revenue.................. $4,190,539 $ -- $ 4,190,539
---------- ----------- ------------
Costs and expenses:
Cost of sales,
including store
occupancy,
warehousing, and
delivery expense..... 3,175,375 -- 3,175,375
Operating and
administrative
expenses............. 857,980 1,668(1) 859,648
---------- ----------- ------------
Earnings before interest
expenses............... 157,184 (1,668) 155,516
---------- ----------- ------------
Interest expenses:
Interest expense,
net................. 105,999 (2,470)(2) 88,449
(9,500)(3)
(3,912)(4)
(1,668)(1)
Amortization of
original issue discount
and deferred debt
expenses............. 7,216 (2,356)(5) 6,760
2,500(5)
(1,025)(6)
425(6)
---------- ----------- ------------
Total interest
expenses......... 113,215 (18,006) 95,209
---------- ----------- ------------
Earnings (loss)
before income
taxes and
extraordinary
item............. 43,969 16,338 60,307
---------- ----------- ------------
Income tax provision..... 2,556 327 2,883(8)
---------- ----------- ------------
Earnings (loss)
before extra-
ordinary item.... 41,413 16,011 57,424(8)
Extraordinary item--early
retirement of debt and
preferred stock, net of
tax benefit............ (44,354) 44,354(7) -- (8)
---------- ----------- ------------
Net earnings (loss)
for the year..... (2,941) 60,365 57,424(8)
Dividends declared on
preferred stock........ 4,924 (4,924)(3) --
---------- ----------- ------------
Net earnings (loss)
available to common
shares................. $ (7,865) $ 65,289 $ 57,424(8)
---------- ----------- ------------
---------- ----------- ------------
Earnings (loss) before
extraordinary item per
common share (9)....... $ 1.24(10) $ 1.80(11)
Net earnings (loss) per
common share........... (0.27)(10) 1.80(11)
---------- ------------
---------- ------------
- ---------------
(1) Reflects adjustments for the IFS Sale and Leaseback relating to a reduction
in depreciation for the assets that were sold, a reduction in interest
expense for the debt that was repaid with the net proceeds therefrom and an
increase in rent expense payable under the IFS Sale and Leaseback.
(2) Reflects the repayment of certain debt with the $65.8 million net proceeds
of the IPO and the corresponding reduction in interest expense assuming an
interest rate of 7 1/2% under the Credit Agreement and the EH II Credit
Agreement for both periods. See "The 1993 Transactions."
(3) Reflects the incurrence of new indebtedness under the Credit Agreement and
the EH II Credit Agreement and the prepayment or redemption of certain
existing indebtedness with, among other things, borrowings thereunder as
part of the Refinancing and the corresponding reduction in interest expense
based on lower interest rates for such new indebtedness. Also, reflects
redemption of the 14 1/2% Preferred Stock. See "The 1993 Transactions."
(4) Reflects the issuance of the Notes and the application of the net proceeds
therefrom to redeem all of the 13% Discount Debentures and $145.0 million
of the 11 1/8% Debentures and the corresponding reduction in interest
expense.
(5) Reflects reversal of amortization of deferred debt expenses related to debt
being repaid of $2.4 million for the year ended January 29, 1994 and the
amortization of deferred debt expenses related to the Credit Agreement of
$2.5 million for the year ended January 29, 1994.
(6) Reflects reversal of original issue discount and deferred debt expenses
related to the 13% Discount Debentures and the 11 1/8% Debentures redeemed
of $1.0 million for the year ended January 29, 1994, and the amortization
of deferred debt expenses related to the Notes of $0.4 million for the year
ended January 29, 1994.
(7) Reflects the elimination of the extraordinary item of $45.3 million and
related income tax benefit of $0.9 million ($44.4 million, net) recognized
as a result of the repayment of existing indebtedness and redemption of the
14 1/2% Preferred Stock.
(8) If the extraordinary item of $45.3 million and related income tax benefit
of $0.9 million were presented as if they had occurred during the period
presented, the income tax provision would have been approximately $2.9
million, earnings before extraordinary item would have been approximately
$57.4 million, the extraordinary item would have been approximately $(44.4)
million, and each of net earnings for the year and net earnings available
to common shares would have been approximately $13.1 million.
(9) Reflects payment of preferred stock dividends of $4,924.
(10) Earnings (loss) before extraordinary item per common share and net earnings
(loss) per common share were calculated on the basis of 29,392,805 weighted
average shares of Common Stock outstanding.
(11) Earnings (loss) before extraordinary item per common share and net earnings
(loss) per common share on a pro forma basis assumes 31,980,305 weighted
average shares of Common Stock outstanding.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company's primary source of revenues is the operation of Eckerd Drug
stores, including Eckerd Express Photo centers. The Company also derives
revenues from the operations of Insta-Care Holdings, Inc. ("Insta-Care") and,
until it was sold effective January 30, 1994, the Company derived revenues from
its Vision Group operations, which together with Insta-Care in the aggregate
represented approximately 4.0% of the Company's sales and other operating
revenue in each of the last three fiscal years. See "Business--Other
Operations." The following discussion is based upon the Company's consolidated
financial statements.
Impact of Non Cash and Non Recurring Charges
As a result of the Acquisition, the Company has incurred a significant
amount of charges which are non cash and/or non recurring. Therefore, the
Company believes that the most relevant measure of its operating results is
earnings before interest and taxes after adding back such non cash and non
recurring Acquisition related charges (together with other non cash charges
unrelated to the Acquisition). The following table sets forth the Company's
operating results excluding such non cash and non recurring charges.
<TABLE><CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
JAN. 29, JAN. 30, FEB. 1, FEB. 2, FEB. 3,
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earnings before interest and taxes........................... $ 157,184 $ 135,383 $ 147,098 $ 111,327 $ 135,399
Depreciation................................................. 49,449 53,753 49,554 47,835 41,979
Amortization of asset write-ups, including goodwill.......... 35,055 38,593 46,255 56,800 46,126
Charges due to performance related programs.................. -- 1,075 4,196 20,252 18,719
Reversal of inventory valuation reserve...................... -- -- -- (1,400) (21,500)
Other amortization........................................... 564 413 1,574 873 528
---------- ---------- ---------- ---------- ----------
EBITDA....................................................... $ 242,252 $ 229,217 $ 248,677 $ 235,687 $ 221,251
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
Depreciation includes normal depreciation of the Company's plant and equipment
over the useful lives of such assets. Other amortization includes the write-off
of certain deferred pre-opening costs for the Company's Visionworks Stores. The
non cash and non recurring Acquisition related charges are discussed in more
detail below.
Amortization of Asset Write-ups, Including Goodwill. As a result of the
Acquisition, Eckerd wrote up the carrying value of its assets by approximately
$707.5 million as of April 30, 1986 in accordance with the purchase price method
of accounting. The write-up was allocated to favorable lease interests ($504.3
million), prescription files ($107.0 million), inventories ($61.7 million) and
the excess of cost over net assets acquired, or goodwill ($34.5 million). Since
April 30, 1986, these assets have been amortized or written off as follows:
FISCAL YEAR AMOUNT
- ----------------------------------------------------------------- -----------
(IN
MILLIONS)
1986........................................................... $ 108.4
1987........................................................... 143.1
1988........................................................... 50.8
1989........................................................... 46.1
1990........................................................... 56.8
1991........................................................... 46.3
1992........................................................... 38.6
1993........................................................... 35.1
-----------
$ 525.2
-----------
-----------
Most of such amortization is fully tax deductible. Amortization is expected to
be approximately $29.0 million in fiscal 1994 and approximately $27.0 million in
fiscal 1995.
20
<PAGE>
Charges Due to Performance Related Programs. In addition to the charges
against earnings resulting from the above mentioned amortization, the
Acquisition resulted in certain expenses in connection with performance related
stock awards to management, performance related stock contributions to the
Company's profit-sharing plan and a long-term incentive plan which have been
charged against operations during the past eight years. The impact of these
expenses on the Company's earnings since the Acquisition were as follows:
FISCAL YEAR AMOUNT
- --------------------------------------------------------------- -------------
(IN MILLIONS)
1986......................................................... $ 6.3
1987......................................................... 8.3
1988......................................................... 11.8
1989......................................................... 18.7
1990......................................................... 20.3
1991......................................................... 4.2
1992......................................................... 1.1
1993......................................................... --
-------------
$ 70.7
-------------
-------------
The Company does not currently anticipate that there will be any further
99expenses as a result of these performance related programs.
Reversal of Inventory Valuation Reserve. As a result of the purchase price
allocation in connection with the Acquisition, the carrying values of the
Company's inventories were written up by $61.7 million. During fiscal 1986, as a
result of valuing year end inventories at the lower of LIFO cost or market value
in accordance with generally accepted accounting principles, the Company
established a $61.7 million inventory valuation reserve, which resulted in a
$61.7 million charge to net income in that year. A portion of the inventory
valuation reserve was reversed during each fiscal year from 1986 through 1990,
in an amount equal to the difference between the LIFO value and market value of
inventory as of the end of such fiscal year. The entire inventory valuation
reserve had been reversed by the end of the first quarter of fiscal 1990 and had
the effect of offseting normal LIFO charges included in the statements of
operations in fiscal 1986 through 1990. The Company incurred normal LIFO charges
in fiscal 1991, 1992 and 1993 without any related reversal of the inventory
valuation reserve and will continue to incur normal LIFO charges in the future.
The impact of normal LIFO charges and the reversal of the inventory valuation
reserve on the Company's earnings since the Acquisition were as follows:
<TABLE><CAPTION>
AMOUNTS
---------------------------------------
REDUCTION
REVERSAL OF OF
FISCAL YEAR LIFO CHARGE RESERVE EARNINGS
- ---------------------------------------------------------- ------------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
1986.................................................... $ 7.7 $ (7.7) $ --
1987.................................................... 13.0 (13.0) --
1988.................................................... 18.1 (18.1) --
1989.................................................... 21.5 (21.5) --
1990.................................................... 23.0 (1.4) 21.6
1991.................................................... 21.0 -- 21.0
1992.................................................... 15.0 -- 15.0
1993.................................................... 8.5 -- 8.5
------------- ----------- -----------
$ 127.8 $ (61.7) $ 66.1
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
Tax Net Operating Loss Carryforwards
As of January 29, 1994, the Company had net operating loss ("NOL")
carryforwards of approximately $332.6 million for federal income tax purposes.
These NOL carryforwards may be utilized to reduce the Company's federal income
tax obligations in future periods and, if not so utilized, will expire in fiscal
2002 to 2008. See the discussion of the Company's tax NOL carryforwards in
"--Tax Net Operating Loss Carryforwards" below. In addition, the Company may be
subject to the federal
21
<PAGE>
alternative minimum tax ("AMT"), which is equal to 20% of the Company's
"alternative minimum taxable income" ("AMTI"), i.e., its regular taxable income
adjusted for certain preference items. As the Company generally may utilize its
NOL carryforwards (as adjusted for AMT purposes) to offset up to 90% of its
AMTI, the Company generally will be subject to the AMT at an effective rate of
at least 2% of its AMTI. After the Company utilizes all of its NOL
carryforwards, its effective tax rate will increase, although any AMT paid may
be used as a credit against the Company's regular federal income tax liability
in future taxable years.
Cost Reduction Program
Since May 1992, the Company has implemented a cost reduction program which
eliminated operating expenses of approximately $70.0 million in fiscal 1993. The
Company estimates that $10.0 million of such savings was recognized in fiscal
1992. The Company has identified areas which are expected to contribute
additional cost reductions of approximately $18.0 million in fiscal 1994, with
most of such savings expected to be realized in the third and fourth quarters.
Going forward, the Company plans to continue to actively evaluate and pursue
additional cost savings which can be obtained without affecting the Company's
customer service, quality or sales growth potential. There can be no assurance,
however, that these additional cost reductions will be realized. See
"Business--Business Strategy--Cost Reduction Program."
Competitive Pricing
In May 1992, the Company commenced a program in certain selected markets
involving lowering prices on prescription drugs sold to non third-party
customers in order to enhance its market share and long term competitive
position. Such program was implemented in all of the Company's markets by
November 1992. Prescription sales to non third-party customers represented 42.0%
of the Company's fiscal 1993 prescription sales. Although the program has
resulted in lower gross margins, as expected, the Company believes that it has
also had the intended effect of stimulating additional business. There can be no
assurance, however, that additional sales increases will be realized from the
competitive pricing program.
The Company believes that its reduced prescription prices, together with
the overall value provided by the high level of customer service and convenience
offered by its drug stores, have enabled the Company to more aggressively
compete with other drug stores and have enhanced its competitive position with
other shopping formats. See "Business--Business Strategy--Competitive Pricing."
Impact of the Refinancing, the IPO and the Note Issuance
On June 15, 1993, the Company consummated the Refinancing, which was
designed to simplify its capital structure, reduce interest expense and dividend
costs and provide additional financial flexibility. The IPO was consummated on
August 12, 1993, and the Note Issuance was consummated on November 2, 1993. On a
pro forma basis, if the Refinancing, the IPO and the Note Issuance had occurred
at the beginning of fiscal 1993, such transactions would have resulted in a
reduction in fiscal 1993 interest expense and preferred stock dividends of
approximately $22.9 million. See "Pro Forma Financial Data."
Non Recurring Adjustments
During fiscal 1993, the Company made non recurring adjustments in
connection with the Refinancing of $28.7 million, consisting of: (i) the
write-off of unamortized deferred costs and fees associated with the Company's
Acquisition-related financing totaling approximately $14.2 million; and (ii) the
recognition of expenses of $14.5 million, associated with the Refinancing,
including fees for certain consents and waivers. During fiscal 1993, the Company
also made non recurring adjustments in connection with the IPO of $2.5 million
and in connection with the Note Issuance of $14.1 million.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
sales and other operating revenue for the periods indicated:
<TABLE><CAPTION>
FISCAL YEARS ENDED
-------------------------------------
JAN. 29, JAN. 30, FEB. 1,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Sales and other operating revenue............................................ 100.0% 100.0% 100.0%
Cost of sales and related expenses........................................... 75.8 74.5 73.2
Gross profit................................................................. 24.2 25.5 26.8
Operating and administrative expenses........................................ 20.5 22.0 22.8
Operating and administrative expenses, excluding amortization of asset
write-ups resulting from the Acquisition and related expenses.............. 19.6 21.0 21.5
Earnings before interest and taxes........................................... 3.8 3.5 3.9
Total interest expense....................................................... 2.7 3.5 3.8
Earnings (loss) before income taxes and extraordinary item................... 1.1 -- .1
Net earnings (loss).......................................................... (.1) (.1) .1
----------- ----------- -----------
----------- ----------- -----------
EBITDA....................................................................... 5.8 5.9 6.6
</TABLE>
Fiscal Year 1993 compared with Fiscal Year 1992
The Company's competitive pricing and cost reduction programs were both
largely reflected in fiscal 1993. The Company's sales and other operating
revenue for fiscal 1993 and 1992 were $4.191 billion and $3.887 billion,
respectively, an increase of $303.5 million, or 7.8%. The increase in sales and
other operating revenue was due primarily to a $244.8 million increase in sales
of prescription drugs.
Prescription sales as a percentage of drug store sales was approximately
48.3% for fiscal 1993 as compared with approximately 45.4% for fiscal 1992. The
growth in prescription sales was primarily the result of increased third-party
prescription sales, the Company's competitive pricing program and a high
incidence of cough and cold/flu virus during the first and fourth quarters of
fiscal 1993. Third-party prescription sales represented approximately 58.0% and
49.6% of the Company's prescription sales in fiscal 1993 and 1992, respectively.
The Company expects prescription sales to third-party payors, in terms of both
dollar volume and as a percentage of total prescription sales, to continue to
increase in fiscal 1994 and thereafter. Although contracts with third-party
payors may increase the volume of prescription sales and gross profit dollars,
third-party payors typically negotiate lower prescription prices than those on
non third-party prescriptions, resulting in decreasing gross profit margins on
the Company's prescription sales. See "Business--The Drug Store Industry."
Comparable drug store sales (stores open for one year or more) increased
6.1% during fiscal 1993 compared to a 3.1% increase in fiscal 1992 from fiscal
1991. The increase in comparable drug store sales was due primarily to the
increase in sales of prescription drugs resulting from sales related to new
third-party prescription plan contracts, the Company's competitive pricing
program, and a high incidence of cough and cold/flu virus during the first and
fourth quarters of fiscal 1993. In addition, comparable drug store sales growth
was positively affected by increased sales of non prescription items in the
health and beauty, greeting card, convenience food and photofinishing categories
resulting from increased marketing emphasis and shelf space for these
categories, as well as increased sales of over-the-counter drugs because of the
high incidence of cough and cold/flu virus during the first and fourth quarters
of fiscal 1993. Total sales growth was positively affected by the growth in
comparable drug store sales, as well as the inclusion of 34 drug stores acquired
during the second half of fiscal 1992 and 19 drug stores acquired in the fourth
quarter of fiscal 1993.
Cost of sales and related expenses in fiscal 1993 and 1992 was $3.175
billion and $2.896 billion, respectively, an increase of 9.6%. As a percentage
of sales, cost of sales and related expenses were 75.8%
23
<PAGE>
and 74.5% for fiscal 1993 and 1992, respectively. The competitive pricing
strategy for non third-party prescription sales and the continued increase in
third-party prescription sales which typically have lower gross profit margins
than non third-party prescription sales partially offset by a lower LIFO charge
of $8.5 million ($15.0 million in fiscal 1992) were the primary reasons for the
increase in cost of sales and related expenses as a percentage of sales in
fiscal 1993.
Operating and administrative expenses in fiscal 1993 and 1992 were $858.0
million and $855.2 million, respectively, an increase of 0.3%. As a percentage
of sales, operating and administrative expenses were reduced to 20.5% in fiscal
1993 from 22.0% for fiscal 1992. Operating and administrative expenses,
excluding amortization of asset write-ups and performance related expenses
resulting from the Acquisition, were $822.9 million and $815.5 million in fiscal
1993 and 1992, respectively, an increase of 0.9%. As a percentage of sales,
operating and administrative expenses, excluding amortization of asset write-ups
and performance related expenses resulting from the Acquisition, decreased to
19.6% in fiscal 1993 from 21.0% in fiscal 1992 as a result of the higher sales
in fiscal 1993 and lower costs as a percentage of sales in such expense
categories as payroll, advertising, insurance and supplies as a result of the
cost reduction program initiated in the second half of fiscal 1992. The
implementation of the cost reduction program eliminated operating expenses of
approximately $70.0 million in fiscal 1993, and the Company estimates that $10.0
million of such savings was recognized in fiscal 1992. Amortization of asset
write-ups and charges associated with certain performance related programs
included in operating and administrative expenses in fiscal 1993 and 1992 were
$35.1 million and $39.7 million, respectively, a decrease of 11.6%.
Earnings before interest expenses increased from $135.4 million in fiscal
1992 to $157.2 million in fiscal 1993, an increase of 16.1%, primarily due to
the increase in gross profit dollars as a result of higher sales and other
operating revenue and the lower rate of increase of operating and administrative
expenses compared to the rate of increase of sales and other operating revenue.
Total interest expenses were $113.2 million and $137.4 million in fiscal
1993 and 1992, respectively, a decrease of 17.6%. The decrease was due primarily
to lower interest rates in the market place and lower cost of debt for the
Company after the Refinancing and the Note Issuance and was also due to a
decrease in outstanding indebtedness until the redemption of the 14 1/2%
Preferred Stock on July 15, 1993 with the proceeds of additional borrowings in
connection with the Refinancing and another subsequent decrease after the
consummation of the IPO on August 12, 1993. Amortization of original issue
discount and deferred debt expenses increased slightly to $7.2 million in fiscal
1993 from $7.0 million in fiscal 1992.
The income tax provision for fiscal 1993 was $2.6 million. The income tax
provision for fiscal 1992 was $2.9 million. The tax provision for fiscal 1993
and 1992 represent alternative minimum tax and state income taxes.
As a result of the foregoing factors, the Company had earnings before
income taxes and extraordinary items in fiscal 1993 of $44.0 million, or 1.1% of
sales, compared with a loss of $2.0 million in fiscal 1992, a net loss in fiscal
1993 of $2.9 million compared with a net loss of $4.1 million in fiscal 1992,
and EBITDA of $242.3 million in fiscal 1993 compared with $229.2 million in
fiscal 1992, an increase of $13.1 million, or 5.7%. As part of a program to
reduce debt, in fiscal 1993 the Company entered into the IFS Sale and Leaseback
relating to certain photo processing equipment and entered into agreements
relating to the placement of certain inventory on consignment. These
arrangements resulted in lower interest expense but caused certain operating
expenses to be higher which negatively affected fiscal 1993 EBITDA.
The Company had an extraordinary item of $44.4 million (net of income tax
benefit of $0.9 million) in fiscal 1993, which was recognized as a result of the
early retirement of existing indebtedness and the redemption of the 14 1/2%
Preferred Stock in connection with the Refinancing, the IPO and the Note
Issuance compared to an extraordinary item of $0.8 million in fiscal 1992, which
represents the tax effect of the utilization of the Company's net operating loss
carryforward.
24
<PAGE>
The Company's results of operations for all periods discussed include the
operations of the Vision Group. The Company sold the Vision Group effective
January 30, 1994. Sales of the Vision Group were $60.7 million in fiscal 1993,
accounting for approximately 1.5% of the Company's sales and 2.2% of the
Company's earnings before interest and taxes. See "Business--Other Operations."
Fiscal Year 1992 compared with Fiscal Year 1991
The Company's sales and other operating revenue for fiscal 1992 and 1991
were $3.887 billion and $3.740 billion, respectively, an increase of $147.0
million, or 3.9%. The increase in sales and other operating revenue was due
primarily to a $109.0 million increase in sales of prescription drugs.
Prescription sales as a percentage of drug store sales was approximately 45.4%
for fiscal 1992 as compared with approximately 44.0% for fiscal 1991. The growth
in prescription sales was primarily the result of increased third-party
prescription sales. Third-party prescription sales accounted for approximately
49.6% and 43.1% of the Company's prescription sales in fiscal 1992 and 1991,
respectively.
Comparable drug store sales (stores open one year or more) increased 3.1%
in fiscal 1992 from fiscal 1991 compared to a 5.7% increase in fiscal 1991 from
fiscal 1990. Comparable store sales in fiscal 1992 compared to fiscal 1991 was
negatively affected by the continued weakness in the economy, lower inflation in
prescription pricing and to a lesser extent reduced prices on non third-party
prescriptions as a result of the Company's competitive pricing strategy
initiated in May 1992.
Cost of sales and related expenses in fiscal 1992 and 1991 was $2.896
billion and $2.739 billion, respectively, an increase of 5.7%. As a percentage
of sales, cost of sales and related expenses increased to 74.5% for fiscal 1992
from 73.2% in 1991. Cost of sales and related expenses as a percentage of sales
in fiscal 1992 was higher than in fiscal 1991 due mostly to the continued rate
of increase in third-party prescription sales with typically lower gross margins
than non third-party prescription sales and lower photo finishing gross margins
from increased coupon redemptions. In addition, fiscal 1992 was affected by
lower gross margins on non third-party prescription sales due to retail price
reductions in connection with the Company's competitive pricing program
implemented in May 1992. The increase in cost of sales and related expenses as a
percentage of sales was offset partially by shrinkage expense reductions and
expansion of the Company's Insta-Care and Vision Group operations, which
generally have higher gross margins than Eckerd Drug stores, and the expansion
of Express Photo centers, which generally have higher gross margins than other
products sold in Eckerd Drug stores.
Operating and administrative expenses in fiscal 1992 and 1991 were $855.2
million and $854.2 million, respectively, an increase of 0.1%. As a percentage
of sales, operating and administrative expenses decreased to 22.0% in fiscal
1992 from 22.8% in fiscal 1991. Operating and administrative expenses, excluding
amortization of asset write-ups and performance related expenses resulting from
the Acquisition, were $815. 5 million and $803.8 million and as a percentage of
sales were 21.0% and 21.5% in fiscal 1992 and 1991, respectively. Operating and
administrative expenses as a percentage of sales were lower in fiscal 1992 than
1991 due to lower costs as a percentage of sales in such expense categories as
payroll, advertising and supplies as a result of the cost reduction program
initiated in the second half of fiscal 1992. Amortization of asset write-ups and
costs associated with certain performance related programs included in operating
and administrative expenses in fiscal 1992 and 1991 were $39.7 million and $50.5
million, respectively, a decrease of 21.4%. This decrease is primarily
attributable to the higher level of write-offs of favorable lease interests of
certain drug stores sold or closed in the first quarter of fiscal 1991 compared
to the first quarter of fiscal 1992 and the greater accruals in fiscal 1991 for
certain performance related programs as a result of the Acquisition.
Earnings before interest expenses decreased from $147.1 million in fiscal
1991 to $135.4 million in fiscal 1992, a decrease of 8.0%, primarily due to
lower gross margins partially offset by an increase in gross profit dollars from
higher sales, a decrease in operating and administrative expenses as a
percentage of sales and a decrease in amortization of asset write-ups and
charges due to certain performance related programs. The Company believes that
in 1993 and thereafter the gross margin
25
<PAGE>
reductions resulting from the new competitive pricing program will be more than
offset by the anticipated cost savings derived from the cost reduction program.
However, due to the timing of implementation of the two programs, in fiscal
1992, the gross margin impact of the competitive pricing program exceeded the
savings derived from the cost reduction program.
Total interest expenses were $137.4 million and $143.2 million in fiscal
1992 and 1991, respectively, a decrease of 4.1%. The decrease is due primarily
to a decrease in outstanding indebtedness during the first three quarters of
fiscal 1992 and lower interest rates. Amortization of original issue discount
and deferred debt expenses in fiscal 1992 was $9.5 million less than in fiscal
1991 due primarily to the completion of amortization of original issue discount
on the 13% Discount Debentures at the end of April 1991. Consequently, net cash
interest expense was $3.8 million higher than in fiscal 1991 due primarily to
the accrual for semi-annual cash interest payments on the 13% Discount
Debentures beginning May 1, 1991.
The income tax provision for fiscal 1992 and 1991 was $2.9 million. The
difference between the tax provision and the extraordinary item represents
alternative minimum tax and state income taxes. The Company had an extraordinary
item of $0.8 million and $1.7 million in fiscal 1992 and 1991, respectively,
which represents the tax effect of the utilization of the Company's net
operating loss carryforward.
As a result of the foregoing factors, the Company had net earnings in
fiscal 1991 of $2.7 million, or 0.1% of sales, compared with a net loss of $4.1
million or (0.1)% of sales, in fiscal 1992, and EBITDA of $229.2 million and
$248.7 million in fiscal 1992 and fiscal 1991, respectively, a decrease of 7.8%.
Quarterly Results and Seasonality
The Company's sales and profits are higher during peak holiday periods and
from Christmas through Easter in selected geographic areas. Sales of
health-related products peak during seasonal outbreaks of cough, cold and flu,
typically during the winter and spring. Accordingly, sales and profits are
typically highest in the fourth quarter followed by the first quarter.
The following table sets forth certain unaudited quarterly operating data
for each of fiscal 1993 and 1992. The data presented includes all adjustments,
consisting only of normal recurring adjustments, that management considers
necessary for a fair presentation of the data shown:
<TABLE><CAPTION>
(IN THOUSANDS)
FISCAL 1993
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------------- --------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales and other operating
revenue........................... $ 1,055,152 $ 981,195 $ 972,675 $ 1,181,517 $ 4,190,539
Gross profit...................... 261,823 238,523 227,769 287,049 1,015,164
EBITDA............................ 74,433 52,005 34,725 81,089 242,252
FISCAL 1992
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------------- --------------- --------- ----------- -----------
Sales and other operating
revenue........................... $ 973,813 $ 913,905 $ 907,493 $ 1,091,816 $ 3,887,027
Gross profit...................... 256,161 238,499 221,384 274,504 990,548
EBITDA............................ 65,421 48,010 36,706 79,080 229,217
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
On June 15, 1993, the Company consummated the Refinancing, which was
designed to simplify its capital structure, reduce interest expense and dividend
costs and provide additional financial flexibility. As part of the Refinancing,
the Company entered into the Credit Agreement. The proceeds of the Credit
Agreement, together with the IFS Sale and Leaseback, payment of the accrued and
deferred
26
<PAGE>
management fee by EH II under the EH II Management Agreement and advance of
future management fees by EH II pursuant to the EH II Note were used by the
Company to prepay or redeem all borrowings under the Old Credit Agreement, the
11.39% Senior Notes, the 11.75% Senior Notes, the Floating Rate Notes, the 13%
Fixed Rate Notes, a substantial portion of the 13% Discount Debentures and the
14 1/2% Preferred Stock. At January 29, 1994, the Company had approximately
$571.7 million outstanding under the Senior Term Loans, nothing outstanding
under the Revolving Credit Facility and $4.5 million of Bankers' Acceptances and
had unused and available borrowing commitments under the Revolving Credit
Facility of $223.9 million. As of March 26, 1994, the Company had borrowed an
additional $137.5 million under the Revolving Credit Facility. Pursuant to the
Credit Agreement, after giving effect to the IPO and the use of the net proceeds
therefrom, the Company is required to make scheduled payments of the outstanding
principal amount of Senior Term Loans in the following approximate amounts:
$61.4 million in fiscal 1994 (of which $33.1 million was paid on January 28,
1994); $66.2 million in fiscal 1995; $85.0 million in fiscal 1996; $85.0 million
in fiscal 1997; $94.4 million in fiscal 1998; $99.3 million in fiscal 1999; and
$113.4 million in fiscal 2000. Prepayments made pursuant to the Credit Agreement
are applied pro rata among the remaining scheduled principal payments. The
Revolving Credit Facility matures in full at the end of July 1999. See "The 1993
Transactions" and "Description of Certain Indebtedness--The Credit Agreement."
On August 12, 1993, the Company consummated the IPO. Of the approximately
$65.8 million of net proceeds of the IPO, the Company used approximately $30.0
million to repay all borrowings outstanding under the EH II Credit Agreement
and the balance to repay Senior Term Loan borrowings under the Credit Agreement
consisting of Tranche A Term Loan borrowings of $27.5 million and Tranche B Term
Loan borrowings of $8.3 million.
Immediately prior to the IPO, the stockholders of EDS (which included
certain of the Merrill Lynch Investors and certain of the Management Investors)
exchanged their shares of EDS common stock for shares of Class A common stock of
the Company, which shares were subsequently converted into 3,781,275 shares of
Common Stock after giving effect to the Stock Split. EDS was subsequently merged
into the Company with EH II becoming a wholly owned subsidiary of the Company,
and the EH II Management Agreement was terminated upon the consummation of the
IPO.
On November 2, 1993 the Company consummated the Note Issuance. The net
proceeds from the Note Issuance of $195.0 million were used to redeem the
balance of the 13% Discount Debentures and $145.0 million aggregate principal
amount of the 11 1/8% Debentures on December 2, 1993. The Notes were issued
pursuant to an effective shelf registration statement relating to $350.0
million aggregate principal amount of Debt Securities. Subject to certain
restrictions contained in the Credit Agreement, the Notes and the Company's
other debt instruments, the Company may issue up to an additional $150.0
million aggregate principal amount of Debt Securities pursuant to such
shelf registration statement.
In fiscal 1993 and 1992, the Company had net losses of $2.9 million and
$4.1 million, respectively. The losses in fiscal 1992 were primarily a result of
the amortization of asset write-ups and performance related expenses resulting
from the Acquisition and interest on the related financing and in fiscal 1993
were primarily a result of the extraordinary item charges related to the
Refinancing, the IPO and the Note Issuance. After adding back $45.3 million from
the extraordinary charge and $92.3 million ($99.7 million in fiscal 1992) of non
cash charges and adding $34.6 million of net working capital and other changes
in fiscal 1993 (less $16.7 million in fiscal 1992), the Company had positive
cash flow from operating activities of $169.3 million in fiscal 1993 ($78.9
million in fiscal 1992). The $90.4 million improvement in cash flow provided by
operating activities for fiscal 1993 compared with fiscal 1992 was primarily due
to a $46.0 million improvement in earnings before extraordinary items for fiscal
1993 compared with fiscal 1992, an increase of $87.4 million in accounts payable
and accrued expenses for fiscal 1993 compared with an increase of $2.0 million
in fiscal 1992, which was partially offset by
27
<PAGE>
increases in inventories and accounts receivable of $35.5 million and $13.9
million, respectively for fiscal 1993 compared with increases of $19.1 million
and $0.6 million, respectively, in fiscal 1992.
The Company had a net loss of $4.1 million in fiscal 1992 (net earnings of
$2.7 million in fiscal 1991). After adding back $99.7 million ($113.9 million in
fiscal 1991) of non cash charges less $16.7 million (plus $9.4 million in fiscal
1991) of net working capital and other changes in fiscal 1992, the Company had
cash flow from operating activities of $78.9 million in fiscal 1992 ($126.0
million in fiscal 1991). The $47.1 million decrease in cash flow provided by
operating activities for fiscal 1992 compared with fiscal 1991 was due in part
to a full year of semi-annual interest payments of $44.8 million on the 13%
Discount Debentures ($22.4 million in fiscal 1991), and the increase in accounts
payable and accrued expenses of $30.6 million during fiscal 1991 compared with
the increase in accounts payable and accrued expenses of $2.0 million during
fiscal 1992.
Net cash used in investing activities for fiscal 1993 was $18.5 million and
net cash used for investing activities for fiscal 1992 was $76.0 million. Uses
of cash were principally for capital expenditures of $33.1 million and $51.4
million, respectively, for additions to the Company's drug stores, Visionworks
and Express Photo units and improvements to existing stores and, in fiscal 1993
and 1992, $14.3 million and $30.5 million, respectively, for the acquisition of
certain drug store assets. In fiscal 1993, a source of cash to the Company from
investing activities was the IFS Sale and Leaseback which provided approximately
$35.0 million. Net cash used for investing activities for fiscal 1991 was $50.5
million, principally for capital expenditures of $49.4 million for additions to
the Company's drug stores, Visionworks and Express Photo units and improvements
to existing stores. Cash capital expenditures planned for fiscal 1994, which
ends January 28, 1995, are expected to be approximately $45.0 million. Funds for
the planned cash capital expenditures are expected to come from cash flow from
operating activities and available borrowings, if necessary. In addition, the
Company plans to finance future expansion or upgrade of photoprocessing
equipment through new five-year operating leases in an amount of up to $10.0
million per year under the IFS Sale and Leaseback. Approximately $5.0 million
has been financed as operating leases as of January 29, 1994. Such items were
previously treated as capital expenditures.
The Company used $157.4 million in cash from financing activities during
fiscal 1993. The primary use of funds relates to the net repayment of $106.0
million of debt, the redemption of the 14 1/2% Preferred Stock and payment of
dividends on such stock for an aggregate of $80.0 million and approximately
$57.0 million in costs associated with the Refinancing and the Note Issuance.
These uses of funds were offset partially by $64.8 million of net proceeds from
the IPO and the $28.7 million increase in bank debit balances. Fiscal 1992
provided $7.2 million in cash principally to reduce bank debit balances and pay
cash dividends on the 14 1/2% Preferred Stock. Financing activities in fiscal
1991 used $76.0 million in cash principally to reduce bank debt.
On a pro forma basis giving effect to the Refinancing, the IPO, the Note
Issuance and the use of the net proceeds therefrom as if such transactions had
occurred at the beginning of fiscal 1993, total interest expense would have been
$95.2 million in fiscal 1993 as compared with the actual total interest expense
of $113.2 million in fiscal 1993, which represents a decrease of $18.0 million
or 15.9%. As compared with the actual total interest expense of $137.4 million
in fiscal 1992, the pro forma interest expense of $95.2 million in fiscal 1993
represents a decrease of $42.2 million, or 30.7%.
The Company anticipates that the combination of amortization of purchase
accounting write-ups and interest on debt will have a negative impact upon
future earnings and, to a lesser degree, cash flow from operating activities.
The Company does not believe, however, that the impact of such planned
amortization and interest expenses upon earnings indicates a present or future
impairment of liquidity. Based upon the Company's ability to generate cash flow
from operating activities, the available unused portion of the working capital
revolving credit loans under the Credit Agreement and other existing financing
sources, the Company believes that it will have the funds necessary to meet the
principal and interest payments on its debt as they become due and to operate
and expand its businesses.
28
<PAGE>
The payment of dividends and other distributions by the Company is subject
to restrictions under certain of the financing agreements to which the Company
is a party, including the Credit Agreement. See "Description of Certain
Indebtedness." The Company does not intend to pay dividends on its Common Stock
in the foreseeable future.
The Company adopted SFAS 109, "Accounting for Income Taxes" in the first
quarter of fiscal 1993. The adoption of SFAS 109 had no material effect on the
Company's results of operations.
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106, "Employer's Accounting for Postretirement Benefits Other Than Pensions."
The implementation of SFAS No. 106 will not have any effect on the Company's
results of operations because none of the Company's employee welfare and benefit
plans provide for postretirement benefits.
TAX NET OPERATING LOSS CARRYFORWARDS
As of January 29, 1994, the Company had NOL carryforwards of approximately
$332.6 million for federal income tax purposes. These carryforwards, if not
utilized to offset taxable income in future periods, will expire in fiscal 2002
to 2008. If the Company experiences an "ownership change" within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Company's ability to use its NOL carryforwards existing at the time of any such
ownership change to offset its taxable income, if any, generated in taxable
periods after the ownership change would be subject to an annual limitation
described below. Although the IPO and related transactions did not cause an
ownership change and the Offerings will not cause an ownership change, it is
possible that future events (such as transfers of the Common Stock by
five-percent shareholders (within the meaning of the Code) or stock issuances by
the Company) could cause the Company to experience an ownership change. In that
event, the amount of NOL carryforwards which may be utilized on an annual basis
(the "Section 382 Limitation") would generally be equal to the product of the
value of all the outstanding stock of the Company immediately prior to the
ownership change (reduced by certain contributions to the Company's capital made
in the two years prior to the ownership change) and the "long-term tax-exempt
rate" (determined monthly and, for ownership changes occurring in the month of
April, 1994, 5.42%). If the Company experienced an ownership change at a time at
which the value of the Common Stock was equal to the public offering price set
forth in the cover page of this Prospectus, the Section 382 Limitation would be
approximately $ million using a long-term tax-exempt rate of 5.42%.
29
<PAGE>
BUSINESS
The Company operates the Eckerd Drug store chain, which is one of the five
largest drug store chains in the United States. At January 29, 1994, the Eckerd
Drug store chain consisted of 1,718 stores in 13 states located primarily in the
Sunbelt, including 550 stores in Florida and 480 stores in Texas.
THE DRUG STORE INDUSTRY
Prescription and over-the-counter medications have traditionally been sold
by independent drug stores as well as conventional drug store chains, such as
Eckerd Drug stores, and purchased by consumers with cash or credit cards. The
drug store industry has recently undergone significant changes as a result of
the following important trends: (i) the increase in third-party payments for
prescription drugs, (ii) the consolidation within the drug store industry, (iii)
the aging of the United States population and (iv) the increase in competition
from non-traditional retailers of prescription and over-the-counter drugs.
During the last several years, a growing percentage of prescription drug
volume throughout the industry has been accounted for by sales to customers who
are covered by third-party payment programs ("third-party sales"). In 1993,
third-party sales represented approximately 49.5% of total prescription drug
sales in the United States, more than three times what it had been in 1986. In a
typical third-party sale, the drug store has a contract with a third-party
payor, such as an insurance company, HMO, PPO, other managed care provider,
government agency or private employer, which agrees to pay for part or all of a
customer's eligible prescription purchases. Although these third-party sales
contracts often provide a high volume of prescription sales, such sales
typically generate lower gross margins than non third-party sales due
principally to the highly competitive nature of this business and recent efforts
by third-party payors to contain costs. Larger drug store chains, such as Eckerd
Drug stores, are better able to service the growing third-party segment than
independent drug stores and smaller chains as a result of the larger chains'
more sophisticated technology systems, larger number of stores and greater
penetration within their markets.
As a result of the economies of scale from which larger drug store chains
benefit as well as the third-party payment trend, the number of independent drug
stores and smaller drug store chains has decreased as many of such retailers
have been acquired by larger drug store chains. This trend is expected to
continue because larger chains are better positioned to handle the increased
third-party sales, purchase inventory on more advantageous terms and achieve
other economies of scale with respect to their marketing, advertising,
distribution and other expenditures. The Company believes that the number of
independent drug stores and smaller drug store chains remaining in operation may
provide significant acquisition opportunities for larger drug store chains, such
as the Company.
Strong demographic trends have also contributed to changes in the drug
store industry, as a significant portion of the United States population ages.
This trend has had, and is expected to continue to have, a marked effect on the
pharmacy business in the United States because consumer prescription and
over-the-counter drug usage generally increases with age. The group of persons
over age 50 is the fastest growing segment of the population. In 1991, this
segment represented approximately 26% of the population, although it consumed
approximately 67% of all prescription drugs sold in the United States. Such
segment is projected to increase to 29% of the population by the year 2000. The
average per capita prescription usage in the United States is approximately 6.5
prescriptions per year, which increases to approximately 7.9, 10.5 and 13.0
prescriptions filled per year for persons ages 50-59, 60-69 and over 70,
respectively. The Company's markets have large concentrations of, and are
continuing to experience significant growth in, the number of persons over age
65.
In 1993, drug store chains and independent drug stores represented
approximately 32% and 52%, respectively, of all pharmacy counters in the United
States. In response to a number of factors, including the aging of the United
States population, mass merchants (including discounters and deep
30
<PAGE>
discounters), supermarkets, combination food and drug stores, mail order
distributors, hospitals, HMOs and other managed care providers have entered the
pharmacy industry. Supermarkets, including combination food and drug stores, and
mass merchants each represented approximately 10% of all pharmacy counters in
the United States in 1993. Although the Company currently faces increased
competition from these retailers, industry studies show that consumers in the
over 65 age group tend to make purchases at traditional drug stores, such as
Eckerd Drug stores, and maintain strong store loyalty.
The Company relies on prescription drug sales for a significant portion of
its revenues and profits, and prescription drug sales represent a growing
segment of the Company's business. These revenues are affected by changes within
the health care industry, including changes in programs providing for
reimbursement of the cost of prescription drugs by third-party payors, such as
government and private sources, and regulatory changes relating to the approval
process for prescription drugs. The Clinton Administration has stated that
health care reform is one of its top priorities, and a governmental task force
was appointed to prepare recommendations as to changes which should be
implemented. President Clinton's plan for health care reform was outlined
broadly to Congress on September 22, 1993 and was subsequently introduced as
legislation on November 23, 1993. The President's plan is currently being
considered by several committees of Congress. A number of competing health care
reform proposals have been introduced in Congress and others are expected to be
introduced in the future. The Company cannot predict the outcome of the Clinton
health care reform plan or of any other reform initiatives or the impact thereof
on the Company's financial position or results of operations. Health care
reform, if implemented, could adversely affect the pricing of prescription drugs
or the amount of reimbursement from governmental agencies and third-party
payors, and consequently could be adverse to the Company. However, to the
extent health care reform expands the number of persons receiving health care
benefits covering the purchase of prescription drugs, it would also result in
increased purchases of such drugs and could thereby have a favorable impact on
both the Company and the retail drug industry in general. Nevertheless, there
can be no assurance that any such future legislation or any similar legislation
adopted by any states in which the Company operates will not adversely affect
the Company or the retail drug store industry generally. See
"Business--Regulation."
ECKERD DRUG STORES
In 1992, the Company celebrated the 40th anniversary of the opening of its
first Eckerd Drug store. The Company has grown to its present size and developed
its leading position in the industry through both internal expansion and
acquisitions. As of January 29, 1994, the Company operated the number of Eckerd
Drug stores and Eckerd Express Photo centers indicated below in each of the
following states:
<TABLE><CAPTION>
DRUG STORES
ECKERD WITH ECKERD
DRUG EXPRESS PHOTO
STORES CENTERS
--------- -----------------
<S> <C> <C>
Florida............................................................ 550 203
Texas.............................................................. 480 112
North Carolina..................................................... 197 39
Georgia............................................................ 160 38
Louisiana.......................................................... 110 16
South Carolina..................................................... 81 4
Tennessee.......................................................... 35 1
Mississippi........................................................ 26 --
Oklahoma........................................................... 25 --
New Jersey......................................................... 23 --
Alabama............................................................ 19 --
Delaware........................................................... 11 --
Maryland........................................................... 1 --
--------- ------
Total......................................................... 1,718 413
--------- ------
--------- ------
</TABLE>
31
<PAGE>
Over the past five years the Company has implemented several initiatives
designed to increase the size, and improve the quality and operating
performance, of the Company's store base. Among such initiatives is the opening
and acquisition of new stores, the closure or divestiture of underperforming
stores and an extensive remodeling program. Since 1986, 450 Eckerd Drug stores
have been opened or acquired within the Company's existing markets, more than
300 underperforming stores have been closed or divested, and over 75% of the
Company's remaining stores have been remodeled. In addition, the Company opened
more than 400 Express Photo centers. The Company has also increased the degree
to which merchandise is tailored to specific markets, instituted a chainwide
shrinkage reduction program and made a significant investment in its management
information systems. As a result of, among other things, these actions,
aggregate sales have increased from $2.73 billion in fiscal 1987 to $4.19
billion in fiscal 1993.
The following table summarizes the number of Eckerd Drug stores operated by
the Company and the sales on an aggregate and per store basis for the last five
years. Upon consummation of the Acquisition, the Company operated 1,593 Eckerd
Drug stores.
<TABLE><CAPTION>
FISCAL YEARS
--------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Number of Eckerd Drug stores at
beginning of period.......... 1,696 1,675 1,673 1,630 1,580
Stores opened or acquired...... 52 50 22 139(1) 75
Stores sold or closed.......... (30) (29) (20) (96)(2) (25)
------------------ ------------ ------------ ------------ ------------
Number of Eckerd Drug stores at
end of period.................. 1,718 1,696 1,675 1,673 1,630
------------------ ------------ ------------ ------------ ------------
------------------ ------------ ------------ ------------ ------------
Number with Express Photo
centers........................ 413 378 321 258 189
Sales of Eckerd Drug stores.... $ 4,014,094 $ 3,722,523 $ 3,594,037 $ 3,330,062 $ 3,023,417
Average annual sales per Eckerd
Drug store..................... $ 2,365 $ 2,222 $ 2,142 $ 2,036 $ 1,887
</TABLE>
- ---------------
(1) Includes 96 stores acquired by, and managed on behalf of, EH II (two of
which were closed in fiscal year 1991). Excludes 127 stores acquired by EH
II that were liquidated or sold.
(2) Includes 14 Eckerd Drug stores closed as a result of the acquisition of drug
stores by EH II.
BUSINESS STRATEGY
The Company's business strategy is focused on maintaining a strong pharmacy
and health-related business because of management's belief regarding the growth
prospects of this business. The Company will continue to implement this strategy
by:
. maintaining a high level of customer service and convenience;
. maintaining competitive prices on its merchandise, including reduced
prices on prescription drugs to non third-party customers in order to enhance
its market share and long-term competitive position;
. continuing its commitment to control costs;
. maintaining an aggressive marketing program to third-party payors, such
as insurance companies, HMOs, PPOs, other managed care providers and government
agencies;
. improving store productivity and profitability by reallocating
nonpharmacy shelf space to certain products, such as health and beauty aids and
greeting cards, and adding food marts, all of which have higher sales and gross
profit growth potential than other products and which the Company believes
increase customer traffic;
. expanding the number of stores within the Company's existing market
areas, both through internal expansion and acquisitions; and
. continuing to invest in information systems to improve customer service,
reduce operating costs, provide information needed to support management
decisions and enhance the Company's competitive position with third-party
payors.
32
<PAGE>
Customer Service and Convenience
The Company believes customer service and convenience are critical to
maintaining its competitive advantage. The Company will continue to emphasize
service and convenience through pharmacy support services, store location and
design, merchandising programs and operating hours geared to the needs of the
particular market.
The Company offers a high level of professional pharmacy service, which the
Company believes provides added value to its customers. The Company provides the
"Rx Advisor," a personalized easy-to-read publication, to each prescription drug
customer, which advises the customer of the specific dosages, contraindications
and side effects of his or her prescription medicine. In addition, the Company
operates a home delivery program in all of its major metropolitan markets. This
program enables the customer to receive same-day delivery of prescription drugs
and non-pharmacy merchandise.
The Company will continue to remodel and reset its stores to provide
modern, well-identified stores, which are easily accessible to customers and
will seek to open new stores in easily accessible high traffic locations. The
Company also tailors its merchandising to provide the product mix and selection
to best serve the customers of each particular store, including beach, tourist,
business and other target groups. The typical Eckerd Drug store is open every
day of the year except Christmas. A select number of strategically located
stores stay open until midnight or 24 hours a day.
Competitive Pricing
While the Company believes that it competes primarily on the basis of
customer service and convenience, price is becoming an increasingly important
factor. As a result, in May 1992, the Company commenced a program in certain
selected markets involving lowering prices on prescription drugs to non
third-party customers in order to enhance its market share and long-term
competitive position. Such program was implemented in all of the Company's
markets by November 1992. The Company believes that its reduced prescription
prices have resulted in it being more aggressively priced than most other
traditional drug stores in its markets and have enhanced its competitive
position with other shopping formats. Although the program has resulted in lower
gross margins, as expected, the Company believes that it has also had the
intended effect of stimulating additional business. See "Risk
Factors--Competition" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition--General--Competitive Pricing."
Cost Reduction Program
Since May 1992, the Company has implemented a cost reduction program which
eliminated operating expenses of approximately $70.0 million in fiscal 1993.
Approximately half of such savings has been derived from the consolidation
and/or centralization of regional and corporate administrative functions and the
corresponding reduction of over 600 positions. Pharmacists, store managers and
other service staff in retail stores were not affected by the cost reduction
program, and store staffing remains at historical levels in order to maintain a
high level of customer service. The Company believes that its cost reduction
program, which has focused upon decreasing corporate and regional overhead
expenses, has provided the Company with the flexibility to be more competitive
in the market place through, among other things, its competitive pricing
program, without decreasing the level of service provided in its stores. In
addition, the Company has derived substantial cost savings through a
rationalization of its advertising expenditures. While advertising efforts
directly related to product sales, such as newspaper inserts, have actually been
increased over last year, certain television and radio advertising expenditures
related to the Company's overall corporate image were reduced, since the Company
believes that such advertising does not have the same direct impact on sales. In
addition, this change in advertising strategy has resulted in increased
financial support from the Company's vendors. Finally, certain efficiencies have
been gained in terms of automated purchasing, data communications costs,
development of support systems and improvement in procurement practices. The
Company has identified areas
33
<PAGE>
which are expected to contribute additional cost reductions of approximately
$18.0 million in fiscal 1994, with most of such savings expected to be realized
in the third and fourth fiscal quarters. Going forward, Eckerd plans to continue
to actively evaluate and pursue additional cost savings which can be obtained
without affecting the Company's customer service, quality or sales growth
potential. There can be no assurance, however, that these additional cost
reductions will be realized. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--General--Cost Reduction Program."
Marketing to Third-Party Payors
The Company believes that the number and concentration of Eckerd Drug
stores within existing markets, the Company's experience and reputation in the
drug store industry and its computerized pharmacy system gives the Company
advantages when compared to independent drug stores, small drug store chains and
mass merchandisers in competing for the increasing amount of third-party sales.
Third-party prescription sales, which are an integral part of the Company's
drug store business, accounted for approximately 58.0%, 49.6%, 43.1%, 36.0% and
30.7% of the Company's prescription sales in fiscal 1993, fiscal 1992, fiscal
1991, fiscal 1990, and fiscal 1989, respectively. The Company currently has
contracts with approximately 350 third-party payors, 45 of which designate the
Company as the exclusive provider of pharmacy services. The third-party payor
contracts provide for direct billing to the third-party payor rather than the
customer. The Company believes that these third-party sales contracts provide
the opportunity for increased volume of prescription sales; however such sales
have lower gross margins than non third-party prescription sales. See "Risk
Factors--Prescription Drug Sales and Future Regulation." The Company intends to
continue to aggressively market itself with all types of third-party payors,
including insurance companies, HMOs, PPOs, other managed care providers,
government agencies and private employers.
The Company has devoted substantial resources to this marketing effort over
the last five fiscal years, including an increase of more than 50% in the number
of third-party sales representatives and administrative personnel to 24 people.
In addition, the Company's computer systems provide on-line adjudication which
permits the Company and the third-party payor to electronically determine, at
the time of sale, eligibility of the customer, coverage of the prescription and
pricing and co-payment requirement, if any, and automatically bills the
respective plan. On-line adjudication reduces losses from rejected claims and
eliminates a portion of the Company's paperwork for billing and collection of
receivables and costs associated therewith. The Company believes that such
systems are essential to service the increasing volume of third-party sales.
During the past four years, the Company has reduced the average number of days
that receivables from third-party sales were outstanding from 48 days in fiscal
1990 to 22 days in fiscal 1993 (or more than 50%) while increasing third-party
sales by 194% during the same period.
Improved Productivity and Profitability of Nonpharmacy Merchandise
The Company is constantly seeking to improve store productivity and
profitability by monitoring and adjusting the mix and selection of its
nonpharmacy merchandise categories and items within each category to emphasize
merchandise that has higher sales and gross profit growth potential. The Company
concentrates on products that it considers especially appropriate for a
health-focused convenience-based drug store and which the Company believes will
increase customer traffic. Although these categories may shift over time based
upon consumer needs and other trends, the Company is currently emphasizing
health and beauty aids, greeting cards and the photo finishing business. To
implement its reorganization of nonpharmacy merchandise, the Company recently
completed a program which reallocated nonpharmacy shelf space within all of its
stores, resulting in, among other things, substantially increased store space
devoted to greeting cards, increased emphasis on health and beauty aids, and the
introduction of a food mart concept in selected locations. In addition, store
configurations have been altered to promote increased store traffic and more
closely conform to
34
<PAGE>
customer preferences, as indicated in market studies conducted by the Company,
including tailoring of specific stores offerings to specific markets where
appropriate.
Expansion and Acquisition
The Company intends to continue to expand its business through both
internal expansion and acquisitions of smaller drug store chains and independent
drug stores. Although the Company currently plans to expand Eckerd Drug stores
within the Company's existing markets, the Company also considers strategic
acquisitions in other markets. During the last three fiscal years, the Company
has acquired or opened 124 new stores. The Company opened or acquired 52 drug
stores in fiscal 1993 and has a goal of opening or acquiring up to 50 drug
stores per year in fiscal 1994 and thereafter through 1997. In addition to such
openings and acquisitions, the Company expects to sell or close approximately 15
3drug stores per year in fiscal 1994 and thereafter through 1997, which would be
intended to improve the quality of the Company's store base. Because of the
improvement in the quality of the Company's store base since the Acquisition,
the Company expects the average number of such closures and divestitures per
year in future years to be less than the average number of closures and
divestitures per year that have occurred since the Acquisition. However, no
assurance can be given that the Company will be able to open or acquire such
number of drug stores or that the average number of closures and divestitures in
future years will in fact be less than the average number of such closures and
divestitures since the Acquisition. The cash costs associated with opening a
drug store are estimated to be approximately $455,000, which includes initial
inventory costs of approximately $265,000. The Company intends to use cash flow
from operations to finance the cash costs of this growth, although borrowings
may also be available to finance such growth. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Liquidity and Capital
Resources." With the drug store industry experiencing consolidation, the Company
believes that there will also be additional acquisition opportunities both
within and outside of its existing markets. In addition to its store acquisition
program, the Company pursues the acquisition of prescription files from other
pharmacies in the Company's existing markets. Once acquired, the prescription
files are transferred to an existing Eckerd Drug store, increasing the
prescription sales volume in that store. Acquisitions by the Company in excess
of certain levels will require consent under the Credit Agreement. See
"Description of Certain Indebtedness--The Credit Agreement."
In determining the areas in which to open or acquire drug stores, the
Company evaluates a number of demographic considerations, including the size,
growth pattern and per capita income of the population, as well as the
competitive environment and the accessibility of a proposed site to the customer
and to the Company's warehouse and distribution facilities. The Company also
continually reviews these factors and the performance of individual stores in
determining whether to close or relocate certain stores.
In addition, the Company currently intends to continue to expand its
one-hour photo finishing business, with a goal of adding approximately 300 new
Express Photo centers by 1998. The Company believes that its long standing
reputation for high quality photo finishing programs and its advertising and
marketing programs which emphasize the Company's experience and reinforce its
image as a quality photo finisher have enabled the Company to develop and expand
its Express Photo center operations. The Company believes that its photo
finishing operations provide further opportunities for growth in its drug store
business due to both the direct contribution to sales from photo finishing and
the significant additional store traffic from such operations, which is
important in generating sales of other products. The Company selects locations
for Express Photo centers based upon the demographics of the market and intends
to concentrate Express Photo center expansion by market to enable the Company to
benefit from advertising and other operating synergies. The costs associated
with opening each Eckerd Express Photo center are estimated to be approximately
$100,000 and will be financed through operating leases or arrangements such as
the IFS Sale and Leaseback.
35
<PAGE>
Information and Technology
The Company intends to continue to invest in information systems to improve
customer service, reduce operating costs, provide information needed to support
management decisions and enhance the Company's competitive position with
third-party payors. The Company's Comp-U-Care System, installed in each pharmacy
location, provides support for the pharmacy and assists pharmacists in their
prescription processing activities, which in turn enhances the pharmacy's
ability to service customers. The system's daily transfer of information between
headquarters and each of the in-store pharmacy terminals allows central
monitoring of prescription sales activity by store and item, centralized billing
of third-party sales and daily updates to the stores' data files. The
Comp-U-Care System performs on-line adjudication of customer and claim
eligibility and reimbursement for the majority of the third-party payment plans
in which the Company participates. Because on-line adjudication reduces losses
from rejected claims and eliminates a portion of the Company's paperwork for
billing and collection of receivables and costs associated therewith, the
Company believes that it is essential to servicing the increasing volume of
third-party sales. See "--Business Strategy--Marketing to Third-Party Payors."
The Company is in the process of implementing a four-year pharmacy systems
enhancement plan designed to provide additional support to pharmacists, meet the
increasing complexity of third-party programs and enhance the Company's
competitive position through advanced technology. As part of this plan, the
Company is currently developing its advanced Comp-U-Care 2000, which is
scheduled to be introduced in Eckerd Drug stores in the second half of fiscal
1994. The Comp-U-Care 2000 will electronically link all Eckerd Drug stores,
which will permit the transfer of information, such as prescription files
directly from one drug store to another thereby improving customer service by
providing more comprehensive patient utilization review and enabling customers
to fill and refill prescriptions at any Eckerd Drug store.
The Company is also in the process of installing a satellite communications
system, which will enhance the Company's on-line third-party authorization and
adjudication capability and its ability to communicate between stores and reduce
communication costs. The Company expects to complete such installation by the
end of fiscal 1994. The Company believes that the satellite communications
system will facilitate implementation of its pharmacy systems enhancement plan.
The Company currently has point-of-sale ("POS") product scanning equipment
in approximately 55 stores and expects to expand scanning to approximately 500
stores by the end of fiscal 1994 with a goal of implementing scanning throughout
the chain. Scanning is a system which inputs POS information by reading the
universal product code of merchandise sold with either a hand held or slot
scanner to capture information on each specific item of product, including
variations in size and color (a stock-keeping unit or "SKU"), sales data and
pricing information. The Company has developed computer systems that use the
information generated from scanning to analyze sales, gross profit, inventory
levels and direct product profitability by category, department and operating
region and, in certain instances, SKU. Such information identifies early trends
in sales by SKU, gross profit performance and inventory position and is also a
source for measuring inventory shrinkage performances. The Company will expand
scanning in 1994 to its higher volume stores in order to maximize benefits and
recover the related expenses more efficiently. The Company believes that broader
use of scanning throughout the chain will improve customer service by decreasing
customer check out time, providing an opportunity to improve margins by more
accurately reflecting the prices of merchandise and improving adherence to
advertised sale or promotional prices and providing enhanced inventory control
and merchandise information. The Company believes the direct benefits of
scanning will be adequate to offset the related expense.
The Company has had a representative sample of stores located through its
six operating regions equipped with electronic POS terminals to capture the same
type of SKU, sales data and pricing information as scanning. This sample
currently includes 250 stores which were selected based upon certain criteria
intended to represent the merchandising results for the entire chain and its
operating
36
<PAGE>
regions. The Company developed computer systems to analyze the information
generated from this electronic POS sample and continues to use this sample
information which, similar to scanning, identifies early trends in sales by SKU,
gross profit performance and inventory position and is a source for measuring
inventory shrinkage performances. The Company believes that its current use of
POS terminals and its use of the information generated thereby will facilitate
the Company's implementation of scanning throughout the chain.
The Company is beginning to expand its use of electronic data interchange
("EDI") systems with certain of its major suppliers. EDI allows for the
paperless ordering of products with immediate confirmation from the vendor on
price, delivery terms and amount of goods ordered. The Company is also
experimenting with automatic replenishment buying in connection with its
warehouse and distribution systems, which includes the computer generation of
purchase orders for certain vendors. These systems should also allow the Company
to reduce lead time on orders and improve cash flow by reducing the amount of
inventory required to be kept on hand. EDI will be expanded as the Company
expands its scanning system.
In 1993, the Company and Integrated Systems Solutions Corporation ("ISSC"),
a wholly-owned subsidiary of IBM, entered into a Systems Operations Service
Agreement pursuant to which the Company and ISSC are developing a state of the
art information systems operation to include pharmacy and POS systems for the
Company's drug stores. Under the agreement, ISSC manages the Company's entire
information systems operation and is responsible for providing technology
services to the Company, which results in, among other things, improved
productivity and significant hardware savings to the Company. ISSC is in the
process of implementing scanning, the Comp-U-Care 2000 and a new distribution
system. The Systems Operations Services Agreement has a 10-year term, and the
total payments to be made by the Company thereunder are currently expected to be
between $320.0 million and $440.0 million over such term, depending on optional
services utilized. The Company believes that this arrangement has and will
continue to enable the Company to further improve customer service, replace the
Company's existing systems, reduce operating costs and capital expenditures for
hardware, obtain information needed to support management decisions on an
improved basis and increase the Company's focus on its core business.
The Company is also developing software with applications in the human
resources area, which would more accurately monitor personnel performance and
attendance and assist management in making personnel scheduling decisions in an
effort to increase productivity and reduce operating costs. Such software is
expected to be implemented in fiscal 1995.
PRODUCTS AND SERVICES
Pharmacy
The primary focus of Eckerd Drug stores is the sale of prescription and
over-the-counter drugs. During fiscal 1993, the Company filled more than 81
million prescriptions, and sales of prescription and over-the-counter drugs
generated approximately 59% of the Company's drug store sales. During the period
from fiscal 1989 to fiscal 1993, the dollar volume of sales of prescription
drugs by the Company increased 55.4%.
The Company seeks to position pharmacists as health-care professionals who
build relationships with their customers. Over the years, marketing and
advertising campaigns have been focused on reinforcing the professionalism of
the Company's pharmacists and positioning them as a key factor to high quality
pharmacy service. The Company has also instituted several health-related
programs such as health screenings, education and outreach programs, and
customer relationship programs. The Company provides the "Rx Advisor," a
personalized easy-to-read publication, to each prescription drug customer, which
advises the customer of the specific dosages, contraindications and side effects
of his or her prescription medicine.
37
<PAGE>
Eckerd Drug store pharmacy departments are modern, clean and clearly
identified by attractive signs. The pharmacy areas in many of the Company's
newer and remodeled stores provide a consultation area and a waiting area with
comfortable seating, informational brochures and free blood pressure testing.
The pharmacy areas are designed to be conducive to customer service and
counseling by the pharmacists. See "--Business Strategy--Customer Service and
Convenience."
The Company believes that it is well positioned to take advantage of
certain demographic trends, including the aging of the United States population.
The Company's stores are concentrated in 10 of the 12 metropolitan statistical
areas with the largest percentage growth in population from 1980 to 1990. In
addition, approximately 60% of the Company's drug stores are located in Florida
and Texas, two of the top three states experiencing the greatest influx of
persons over age 65. According to industry studies, persons over age 65 purchase
twice as many prescription drugs and 50% more over-the-counter drugs than the
national average. The Company also believes that it is capable of meeting the
needs of the increasing volume of third-party prescription sales and is
aggressively marketing itself to third-party payors. See "--Business
Strategy--Marketing to Third-Party Payors" and "Risk Factors--Prescription Drug
Sales and Future Regulation."
The Company believes that new prescription drugs and drug therapies provide
an opportunity for increased demand for prescription drugs. In addition, the
Food and Drug Administration is approving an increasing number of prescription
products for sale over the counter. Prescription drugs which are approved for
over-the-counter distribution have historically shown significantly increased
sales.
Photo Finishing
Another significant focus of Eckerd Drug stores is photo finishing. The
Company offers overnight photo finishing services in all Eckerd Drug stores and
operates Eckerd Express Photo centers, which are one-hour photo processing
mini-labs. Eckerd Express Photo centers were located in 413 Eckerd Drug stores
at January 29, 1994. Sales from photo finishing accounted for approximately 5.1%
of the Company's drug store sales in fiscal 1993 and were the second largest
component of drug store profit. The Company believes that its photo finishing
operations provide further opportunities for growth in its drug store business
because of the direct contribution to sales from photo finishing and the
significant additional store traffic from such operations, which is important in
generating sales of other products. Photo finishing generates store traffic
because it generally requires two trips to a store--one visit to drop off the
roll of film and one visit to pick up the developed pictures.
The Company is among the top three retail photo finishers in the United
States, and the Company believes that it is the leading source of photo
finishing in all of the major markets in which it operates. The Company
processed over 28 million rolls of film in fiscal 1993 in its own photo labs and
has several well known branded processing programs, including System 2(R) (two
prints for the price of one), Ultralab 35(R) (larger size, higher quality
prints) and Express Print 60 (one-hour processing). The Company believes that
its branded processing programs, which emphasize quality and service, have
helped position the Company as a leader in photo finishing. The Company
currently intends to continue to expand its one-hour photo finishing business,
with a goal of adding approximately 300 new Express Photo centers by 1998. As a
method of financing such growth, the Company entered into the IFS Sale and
Leaseback, which also provides the Company with up to $10 million per year in
new five-year operating leases for future expansion or upgrade of
photoprocessing equipment.
The Company's photo departments also offer camera and photo accessories,
small electronics, batteries and audio and video tapes. The entire photo
department, including photo finishing, represented approximately 9.5% of the
Company's total drug store sales in fiscal 1993.
38
<PAGE>
Nonpharmacy Merchandise
In addition to prescription and over-the-counter drugs and photo finishing
services, Eckerd Drug stores sell a wide variety of nonpharmacy merchandise,
including health and beauty aids, greeting cards and numerous other convenience
products. Eckerd-brand products, which are attractively priced and provide
higher margins than similar national brand products, represent a growing segment
of products offered by Eckerd Drug stores. Sales of private label products
accounted for $188.1 million of the Company's sales in fiscal 1993.
Health. Eckerd Drug stores offer a broad assortment of popular national
brands as well as private label over-the-counter drugs and other products
related to dental care, foot care, vitamins and nutritional supplements,
feminine hygiene, family planning and baby care. Eckerd Drug stores provide a
helpful environment in which consumers can obtain product information from
professional pharmacists, knowledgeable sales associates and store managers or
from literature available throughout the store.
Beauty. Eckerd Drug stores offer an assortment of popular brand name
cosmetics, fragrances and other beauty products. Management believes that Eckerd
Drug stores provide the customer with a convenient format in which to purchase
the lines of beauty products offered in its stores. Skin care products are an
increasingly important component of the beauty category due to the aging
population and growing concern about the effects of the environment on the skin.
The Company has recently completed an expansion which devoted more shelf space
to this product category.
Greeting Cards. The greeting card department in Eckerd Drug stores offers a
wide selection of contemporary and traditional cards, gift wrap, bows and
novelties. The Company believes that the locations of its stores together with
the wide selection offered by Eckerd Drug stores enable customers to satisfy
their card and gift needs more conveniently than at traditional card stores. The
Company has recently increased the space devoted to its greeting card department
because of the profitability of such merchandise and because the Company
believes that the demand for such merchandise will increase traffic in its
stores.
Convenience Products. This merchandise category consists of an assortment
of items, including candy, food, tobacco products, books and magazines,
household products, seasonal merchandise and toys. These items are carefully
positioned to provide optimum convenience to the customer with easy access in
the front part of the store. The Company also seeks to serve its customers'
needs by specifically tailoring items in this category to meet the needs of its
customers in specific store locations, including the introduction of a food mart
concept in selected locations. For example, souvenirs and select summer products
are offered in beach and tourist locations while convenience food is stressed in
urban areas and malls.
STORE OPERATIONS
Eckerd Drug stores are located and designed to maximize customer service
and convenience and are situated in areas of high customer traffic, typically in
neighborhood shopping centers with strong supermarket co-tenants or in
strategically located free-standing stores. Eckerd Drug stores are designed to
facilitate customer movement and feature well-stocked shelves, clearly
identified aisles and well-lit interiors to maximize product visibility.
Pharmacy departments are generally located near the back of the store to
maximize customer exposure to the store. The stores are equipped with modern
fixtures and equipment and most of them range in size from 8,200 to 10,800
square feet. About 85% of the floor space is selling area, with the remainder
used for storeroom and office space.
To enhance productivity per square foot and maintain consistent
merchandising, the Company utilizes centrally prepared formats for the display
and stocking of products in the Company's stores, while continuing to allow some
flexibility to store managers to modify the merchandise assortment based upon
the Company's program of tailoring merchandise offerings to the markets in which
the stores operate.
39
<PAGE>
The typical Eckerd Drug store is open every day of the year except
Christmas, with store hours geared to the needs of the specific markets. A
select number of strategically located stores stay open until midnight or 24
hours a day.
Eckerd Drug stores are currently grouped under six operating regions
located in or near Orlando and Deerfield Beach, Florida; Atlanta, Georgia;
Charlotte, North Carolina; and Dallas and Houston, Texas. Each operating region
is headed by a vice president who supervises the various districts comprising
the region. Within each district, there are managers who are responsible for the
drug stores in their districts and regularly visit their stores to assure
quality of service and merchandising. District pharmacy managers supervise the
pharmacy operations in the drug stores. Each drug store is individually
supervised by a manager who receives training in the Company's merchandise
offerings, customer service and management strategy.
The Company has implemented various programs designed to reduce shrinkage
expense. These programs include training and awareness programs, tailored audit
programs for district managers, internal auditors and loss prevention
specialists, and computerized exception reporting for, among other things,
customer refunds, voids and cash overages and shortages from daily register
check-outs.
PURCHASING AND DISTRIBUTION
Merchandising, buying and supplier payments are generally centralized at
Company headquarters to assure consistency of marketing approach and efficiency
in supplier relations. The Company has implemented an enhanced electronic buying
system to improve inventory management and gross profit by enabling the Company
to take better advantage of quantity discounts and forward buying opportunities,
which the Company believes will lower the average cost of inventory.
Additionally, it is anticipated that this buying system and its improved
forecasting ability will improve service levels to the stores and will reduce
average inventory required in the Company's distribution centers.
Approximately 85% of store merchandise is purchased centrally and
distributed, principally by Company-operated trucks, through the Company's five
centrally located distribution facilities located in or near Orlando, Florida;
Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. The
remainder of store merchandise is purchased at the store level.
ADVERTISING AND MARKETING
A combination of newspaper advertising and TV and radio spot commercials is
carried on throughout the year to promote sales. During the fiscal year ended
January 29, 1994, these advertising expenses totaled approximately 0.6% of
Company sales. The Company's concentration of stores within its markets enables
it to achieve economies of scale in its advertising and marketing expenditures
and also enables the Company to negotiate favorable rates for advertising time
and print production. From the time of the Acquisition through fiscal 1993, the
Company reduced its advertising expense as a percentage of sales by more than
70%. In addition, the Company has derived additional cost savings through a
rationalization of its advertising expenditures. As part of the cost reduction
program, certain advertising expenditures related to the Company's overall
corporate image were reduced in favor of advertising efforts such as newspaper
circulars. This change in advertising strategy has resulted in increased
financial support from the Company's vendors and a more direct impact on sales.
The Company believes that its current level of advertising expenditures is
appropriate to support its existing marketing strategies.
The Company's communications and marketing programs are based upon an
ongoing commitment to consumer research. Through regular telephone surveys in
all major markets, exit interviews in its stores, and studies of various
consumer groups, the Company is able to monitor changes in customer attitudes
and shopping habits and adjust its marketing strategies accordingly.
40
<PAGE>
COMPETITION
The Company's retail drug stores operate in a highly competitive industry.
The Company's drug stores compete primarily on the basis of customer service,
convenience of location and store design, price and product mix and selection.
In addition to traditional competition from independent drug stores and
other drug store chains, the Company faces competition from mass merchants
(including discounters and deep discounters), supermarkets, combination food and
drug stores, mail order distributors, hospitals and HMOs. These other formats
have experienced significant growth in their market share of the prescription
and over-the-counter drug business. Many of the Company's competitors have
greater financial resources than the Company. See "Risk Factors--Competition"
and "--The Drug Store Industry."
The Company's Express Photo centers compete with a variety of photo
processors including other mini-labs, retail stores and photo specialty stores.
The Company's Express Photo business competes primarily on the basis of quality
of processing, quality and speed of service and value.
REGULATION
All of the Company's pharmacists and its stores are required to be licensed
by the appropriate state boards of pharmacy. The Company's drug stores and its
distribution centers are also registered with the Federal Drug Enforcement
Administration. Most of the stores sell beer and wine and are subject to various
state and local liquor licensing requirements. By virtue of these license and
registration requirements, the Company is obligated to observe certain rules and
regulations, and a violation of such rules and regulations could result in a
suspension or revocation of the licenses or registrations.
The Company has a number of third-party payor contracts pursuant to which
the Company is a provider of prescription drugs. "Freedom of choice" state
statutes, pursuant to which all pharmacies would be entitled to be a provider
under such a contract, have been enacted in certain states, including Alabama,
Georgia, New Jersey, North Carolina, Louisiana, Tennessee and Texas, and may be
enacted in others. Although such statutes may adversely affect certain of the
Company's third-party contracts, they may also provide the Company with
opportunities regarding additional third-party contracts.
The Clinton Administration has stated that health care reform is one of its
top priorities, and a governmental task force was appointed to prepare
recommendations as to changes which should be implemented. President Clinton's
plan for health care reform was outlined broadly to Congress on September 22,
1993 and was subsequently introduced as legislation on November 20, 1993. The
President's plan is currently being considered by several committees in
Congress. The goal of such plan, which would be phased in from 1995 through
1997, is to guarantee comprehensive health coverage (including prescription
drugs) for all Americans regardless of health or employment status through a
system of regional and corporate health alliances that are expected to promote
competition and maintain quality, service and price. Under President Clinton's
plan, all employers would be required to pay at least 80% of the coverage for
their employees, and an independent national supervisory board would be
established to implement and enforce the national budget for health care
spending, with the power, among others, to investigate the prices of new drugs
that represent a breakthrough over existing therapies. In addition, under the
Clinton health care reform plan benefits offered under the Medicare program
would be expanded to cover prescription drugs on an outpatient basis, and
discriminatory pricing by prescription drug manufacturers based on "class of
trade" (e.g., hospitals, mail order pharmacies, HMOs) would be eliminated.
A number of competing health care reform proposals have been introduced in
Congress and others are expected to be introduced in the future. President
Clinton's proposals to expand prescription drug coverage to all Americans,
including those covered by the Medicare program, and to eliminate discriminatory
pricing by prescription drug manufacturers may not be included in any of the
other health care reform proposals. The Company cannot predict the outcome of
the Clinton health care reform plan or of any other reform initiatives or
41
<PAGE>
the impact thereof on the Company's financial position or results of operations.
Health care reform, if implemented, could adversely affect the pricing of
prescription drugs or the amount of reimbursement from governmental agencies and
third-party payors, and consequently could be adverse to the Company. However,
to the extent health care reform expands the number of persons receiving health
care benefits covering the purchase of prescription drugs, it would also result
in increased purchases of such drugs and could thereby have a favorable impact
on both the Company and the retail drug industry in general. Nevertheless, there
can be no assurance that any such future legislation or any similar legislation
adopted by any states in which the Company operates will not adversely affect
the Company or the retail drug store industry generally.
In 1990, Congress enacted the Omnibus Budget Reconciliation Act of 1990
("OBRA 1990") which includes a requirement that states implement pharmaceutical
drug use review programs for Medicaid beneficiaries receiving covered
out-patient prescription drugs. The OBRA 1990 legislation states that
pharmacists must offer to discuss with each Medicaid patient "common, severe
side or adverse effects or interactions and therapeutic contraindications that
may be encountered, including their avoidance and the action required if they
occur." In order to ensure reimbursement of out-patient prescription drugs under
Medicaid, states were required, pursuant to the OBRA 1990 legislation, to
implement drug use review programs by January 1, 1993. In all states where the
Company operates (except South Carolina), the State Pharmacy Practices Acts have
expanded the OBRA requirements to include all patients receiving prescriptions
in a retail setting. Pharmacists now have a duty to warn the purchaser of a
prescription drug if the warning could reduce or negate the adverse effects of
the use of such drug.
In 1993, the state of Florida enacted health care legislation that is
applicable to state employees, small businesses with fewer than 50 employees and
Medicaid recipients. Such legislation, which will be implemented in 1994, will
create 11 health care purchasing cooperatives, which will accept bids from
health care providers to provide goods and services to the cooperatives. The
Company expects to submit bids to provide prescription drugs to the
cooperatives. However, the Company is unable to predict the outcome of such bids
or the impact of the Florida legislation on the Company's financial position or
results of operations.
In January 1994, the state of Tennessee replaced its Medicaid program with
a program that is run by various managed care organizations. Several different
plans exist under such legislation and the Company is participating in
substantially all of the plans. The Company is unable to predict the impact of
the Tennessee legislation on the Company's financial position or results of
operations but the Company does not believe that the impact will be significant.
OTHER OPERATIONS
The Company has been engaged in the institutional pharmacy business since
1980. In October 1989, the Company purchased the predecessor of Insta-Care from
Revco and integrated that business with its existing operations. Insta-Care
provides prescription drugs as well as patient record and consulting services to
long-term health care facilities in New England and the Sunbelt. Sales of Insta-
Care were $107.5 million in fiscal 1993, accounting for approximately 2.5% of
the Company's sales and 2.6% of the Company's earnings before interest and
taxes. Insta-Care is not part of the Company's core drug store business and the
Company is considering the sale of the assets or stock of Insta-Care and would
sell such stock or assets if a suitable opportunity arose. No assurance can be
given that a sale of Insta-Care will be consummated in the future or, if
consummated, that the proceeds will be used other than to repay indebtedness
outstanding under the Credit Agreement, as currently required by the Credit
Agreement.
The Company operated Eckerd Optical centers and "Visionworks" retail
optical superstores until the Vision Group was sold effective January 30, 1994.
The Company sold the Vision Group to an investment group, which included Richard
W. Roberson, the President of the Vision Group, and other members of the Vision
Group management, for an amount in cash and notes approximately equal to the
book value of the related assets. Sales of the Vision Group were $60.7 million
in fiscal 1993, accounting for approximately 1.5% of the Company's sales and
2.2% of the Company's earnings before interest and taxes.
42
<PAGE>
EMPLOYEES
As of January 29, 1994, the Company had approximately 43,000 employees, of
which 24,100 were full-time employees. The Company believes that overall
employee relations are good. None of the Company's employees are represented by
unions.
PATENTS, TRADEMARKS AND TRADENAMES
No patent, trademark, license, franchise or concession is considered to be
of material importance to the business of the Company other than the trade names
under which the Company operates its retail businesses, including the Eckerd
name. The Company also holds servicemarks for its photo finishing products,
private label products and information systems.
PROPERTIES
The Company conducts substantially all of its retail businesses from stores
located in leased premises. Substantially all of these leases will expire within
the next twenty-five years. In the normal course of business, however, it is
expected that leases will be renewed or replaced by leases on other properties.
Most of the Company's store leases provide for a fixed minimum rental together
with a percentage rental based on sales.
The material office and distribution center properties owned or leased by
the Company at January 29, 1994 are as follows:
<TABLE><CAPTION>
APPROXIMATE OWNED OR
LOCATION SQUARE FEET LEASED
- --------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Largo, Florida................................................................... 488,000 Owned(1)
Charlotte, North Carolina........................................................ 587,000 Owned
Garland, Texas................................................................... 270,000 Owned
Conroe, Texas.................................................................... 345,000 Owned
Orlando, Florida................................................................. 321,000 Owned(2)
Orlando, Florida................................................................. 587,000 Leased(2)
Newnan, Georgia.................................................................. 244,000 Owned(3)
Hammond, Louisiana............................................................... 185,000 Owned(3)(4)
</TABLE>
- ---------------
(1) Includes the Company headquarters.
(2) In January, 1993 the Company assumed a lease for an office and distribution
facility of approximately 587,000 square feet (lease expires 2005). The
Company's existing Orlando facility and the Largo distribution center
facility were consolidated into the new facility during 1993. Existing
Orlando facilities which are owned are being offered for sale.
(3) Construction was financed pursuant to revenue bond issues. Because these
properties are currently leased subject to nominal purchase options with
development authorities which the Company anticipates it will exercise, they
are listed as owned by the Company.
(4) The Company closed the Hammond distribution center and subleased the former
Hammond, Louisiana office and distribution center.
The Company considers that all property owned or leased is well maintained
and in good condition.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company and its subsidiaries
are parties to various legal actions which the Company believes are routine in
nature and incidental to the operation of the business of the Company and its
subsidiaries. The Company believes that the outcome of the proceedings to which
the Company and its subsidiaries currently are parties will not have a material
adverse effect upon its operations or financial condition.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and office or principal occupation of the executive officers
and directors of the Company and certain information relating to their business
experience are set forth below:
<TABLE><CAPTION>
NAME AGE POSITION
- -------------------------------------------- ----------- -------------------------------------------------------------
<S> <C> <C>
Stewart Turley.............................. 59 Director, Chairman of the Board and Chief Executive Officer
Francis A. Newman........................... 45 Director, President and Chief Operating Officer
John W. Boyle............................... 65 Director and Vice Chairman of the Board
Dr. James T. Doluisio....................... 58 Director
Donald F. Dunn.............................. 68 Director
Albert J. Fitzgibbons, III.................. 48 Director
Lewis W. Lehr............................... 73 Director
Alexis P. Michas............................ 36 Director
Rupinder S. Sidhu........................... 37 Director
Edward W. Kelly............................. 48 Senior Vice President/Merchandising
James M. Santo.............................. 52 Senior Vice President/Administration and Secretary
Samuel G. Wright............................ 43 Senior Vice President/Finance
Robert L. Myers............................. 48 Senior Vice President/Pharmacy
Robert D. Boos.............................. 54 Vice President
Oren M. Peacock............................. 56 Vice President
</TABLE>
Mr. Turley is Chairman of the Board and Chief Executive Officer
of the Company, positions he has held since 1986. He served as President
of the Company from 1986 until July 1993. He joined Old Eckerd in 1966
and has served as Senior Vice President (1971-1974) and President and Chief
Executive Officer (1974-1975) prior to being elected to Chairman of the Board,
President and Chief Executive Officer. He is also a director of Barnett Banks,
Inc., Sprint Corporation and Springs Industries, Inc.
Mr. Newman is President, Chief Operating Officer and a Director of the
Company, positions he has held since July 6, 1993. Prior to joining the Company,
Mr. Newman served as President, Chief Executive Officer and a director of F&M
Distributors, Inc. ("F&M"), a drug store chain, since 1986. Prior to joining
F&M, he was the Executive Vice President of Household Merchandising, a retail
firm, from 1984 to 1985 and the Senior Vice President of Merchandising for F.W.
Woolworth, a retail firm, from 1980 to 1984. Mr. Newman is also a director of
FabriCenters of America, a retail firm.
Mr. Boyle was appointed Vice Chairman of the Board in February 1993. Prior
thereto he was Senior Vice President/Finance and Administration of the Company,
a position he has held for more than the past five years. He joined Old Eckerd
as Senior Vice President/Finance and Administration in 1983.
Dr. Doluisio is Dean of the College of Pharmacy, University of Texas,
Austin, Texas. Dr. Doluisio has been Dean since 1973 and has served as chairman
of the American Pharmaceutical Association, the American Association of College
of Pharmacy Council of Deans, the American Association for the Advancement of
Science and as a trustee of the United States Pharmacopeia. He is also a
director of COR Therapeutics, Inc.
Mr. Dunn is retired Chairman of the Board and Chief Executive Officer of
Maas Brothers/Jordan Marsh, a division of Allied Stores Corporation, New York,
New York. In his 39-year career with Allied Stores, starting as an executive
trainee, Mr. Dunn held numerous management positions including that of executive
group manager of Allied Stores for Jordan Marsh and Maas Brothers in Florida,
Cain-Sloan in Tennessee and Joske's in Texas. Mr. Dunn is also a director of
Tech Data Corporation and Younkers, Inc.
44
<PAGE>
Mr. Fitzgibbons has been a director of Merrill Lynch Capital Partners since
1988. He has been a Partner of Merrill Lynch Capital Partners since 1993; an
Executive Vice President of Merrill Lynch Capital Partners from 1988 to 1993; a
Senior Vice President of Merrill Lynch Capital Partners from 1987 to 1988; a
Managing Director of the Investment Banking Division of Merrill Lynch & Co. ("ML
& Co.") since 1978; and Vice President of Merrill Lynch from 1974 to 1988. He is
also a director of Amstar Corporation, Borg-Warner Security Corporation,
Borg-Warner Automotive, Inc., Consumer Markets, Inc., ESSTAR Corporation U.S.
Foodservice, Inc., AmeriFoods Companies, Inc. and United Artists Theatre
Circuit, Inc.
Mr. Lehr is former Chairman of the Board of 3M Company, St. Paul,
Minnesota. In his 39-year career with 3M Company, starting as an engineer, Mr.
Lehr held numerous management positions and from 1980 to March 1986, when he
retired, was Chairman of the Board and Chief Executive Officer. He also serves
as a director of Peregrine Semiconductor Corporation and various IDS Funds.
Mr. Michas has been a director of Merrill Lynch Capital Partners since
1989. He has been a Partner of Merrill Lynch Capital Partners since 1993; a
Senior Vice President of Merrill Lynch Capital Partners from 1990 to 1993; a
Vice President of Merrill Lynch Capital Partners from 1987 to 1989; a Managing
Director of the Investment Banking Division of ML & Co. since 1991; a Director
of the Investment Banking Division of ML & Co. from 1990 to 1991; and a Vice
President of the Investment Banking Division of ML & Co. from 1987 to 1989. He
is also a director of Amstar Corporation, Borg-Warner Security Corporation,
Borg-Warner Automotive, Inc. and Blue Bird Body Corporation.
Mr. Sidhu has been a director of Merrill Lynch Capital Partners since 1988.
He has been a Partner of Merrill Lynch Capital Partners since 1993; a Senior
Vice President of Merrill Lynch Capital Partners since 1987; a Vice President of
Merrill Lynch Capital Partners from 1985 to 1987; a Managing Director of the
Investment Banking Division of ML & Co. from 1989 to 1993; and a Director of the
Investment Banking Division of ML & Co. from 1987 to 1989. He is also a director
of Clinton Mills, Inc., First-USA, Inc., John Alden Financial Corporation and
Wherehouse Entertainment, Inc.
Mr. Kelly was appointed Senior Vice President/Merchandising in February
1993. Prior thereto he served as Vice President of Merchandising of Eckerd Drug
Company, formerly Old Eckerd's principal subsidiary ("Eckerd Drug Company") and
now the Company's principal division, for more than the past five years.
Mr. Santo was appointed Senior Vice President/Administration in February
1993. Prior thereto he was Vice President/Legal Affairs of the Company, a
position he has held for more than the past five years. In addition, Mr. Santo
was appointed Secretary of the Company effective January 1, 1992.
Mr. Wright was appointed Senior Vice President/Finance in February 1993.
Prior thereto he was Vice President and Controller of the Company, a position he
has held since September 1988. Mr. Wright became Vice President of the Company
in June 1986. In addition, Mr. Wright has served as Vice President of Finance of
Eckerd Drug Company since May 1985.
Mr. Myers was appointed Senior Vice President/Pharmacy in February 1993.
Prior thereto he was Vice President of the Company, a position he has held for
more than the past five years. In addition, Mr. Myers has served as Vice
President of Pharmacy Services of Eckerd Drug Company for more than the past
five years.
Mr. Boos was appointed Vice President of the Company in April 1991. In
addition, Mr. Boos has been Vice President of Real Estate and Development of
Eckerd Drug Company since August 1985. Mr. Boos joined Eckerd Drug Company in
1982.
Mr. Peacock is Vice President of the Company, a position he has held for
more than the past five years. Mr. Peacock is also a Senior Regional Vice
President for the North Texas Region of Eckerd Drug Company.
45
<PAGE>
Messrs. Turley, Boyle, Doluisio, Dunn, Fitzgibbons and Lehr have been
directors of the Company since May 1986. Mr. Sidhu became a director of the
Company in April 1988, Mr. Michas became a director of the Company in April
1990, and Mr. Newman became a director in July 1993.
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. The terms of office of Messrs. Boyle, Doluisio and
Sidhu will expire in 1994, the terms of office of Messrs. Michas, Dunn and
Newman will expire in 1995 and the terms of office of Messrs. Fitzgibbons,
Turley and Lehr will expire in 1996.
Messrs. Doluisio, Dunn and Lehr serve as members of the Audit Committee,
Messrs. Fitzgibbons, Dunn and Lehr serve as members of the Executive
Compensation and Stock Option Committee, and Messrs. Turley, Dunn and
Fitzgibbons serve as members of the Executive Committee, of the Board of
Directors of the Company. Officers of the Company serve at the discretion of the
Board of Directors. Messrs. Fitzgibbons, Sidhu and Michas are employees of
Merrill Lynch Capital Partners and serve on the Board of Directors of the
Company as representatives of the Merrill Lynch Investors.
Officers are elected for a one-year term by the Board of Directors at its
annual meeting. There is no family relationship between any of the
aforementioned officers or directors of the Company.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 26, 1994 by (i) each of the directors
of the Company, (ii) each of the named executive officers of the Company (iii)
each person known by the Company to be the beneficial owner of approximately
five percent or more of the outstanding Common Stock, (iv) all of the Company's
directors and executive officers as a group and (v) by each Selling Stockholder.
Unless otherwise indicated, the Company believes that the beneficial owner has
sole voting and investment power over such shares. The following table treats
the 136,808 shares of Management Restricted Stock as issued and outstanding. See
"Description of Capital Stock--Management Restricted Stock." The table does not
reflect the possible sale of additional shares if the Underwriters' over-
allotment options are exercised in full. The Selling Stockholders will
participate proportionately in any sales pursuant to the over-allotment options
based on their participation in the Offerings.
<TABLE><CAPTION>
OWNERSHIP PRIOR TO OWNERSHIP AFTER
THE OFFERINGS THE OFFERINGS
----------------------------- -----------------------------------------
SHARES OF SHARES TO SHARES OF
NAME COMMON STOCK PERCENTAGE BE SOLD COMMON STOCK PERCENTAGE
- ---------------------------------------- -------------- ------------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Investors(1).............. 14,697,104 46.45% 2,811,145 11,885,959 37.56%
The Equitable Life Assurance Society of
the United States(2).................. 1,654,526 5.23 545,344 1,109,182 3.51
J.P. Morgan Capital Corp.(3)............ 1,641,422 5.19 541,025 1,100,397 3.48
Company Employees' Profit Sharing
Plan(4)............................... 1,409,522 4.45 -- 1,409,522 4.45
The Northwestern Mutual Life Insurance
Company(5)............................ 1,378,759 4.36 263,244 1,115,515 3.53
American Home Assurance Company(6)...... 1,213,951 3.84 400,127 813,824 2.57
CBC Capital Partners(7)................. 807,028 2.55 266,002 541,026 1.71
Wells Fargo & Company(8)................ 370,729 1.17 122,195 248,534 *
First Bank System(9).................... 75,355 * 24,838 50,517 *
Monarch Life Insurance Company(10)...... 72,966 * 24,050 48,916 *
Continental Trust Company as trustee of
Sears Pension Trust(11)............... 6,159 * 2,030 4,129 *
Stewart Turley(12)...................... 567,623 1.79 -- 567,623 1.79
Francis A. Newman....................... 5,400 * -- 5,400 *
John W. Boyle(13)....................... 144,505 * -- 144,505 *
Dr. James Doluisio(14).................. 6,437 * -- 6,437 *
Donald F. Dunn(15)...................... 13,217 * -- 13,217 *
Albert J. Fitzgibbons, III(16)(17)...... 4,717 * -- 4,717 *
Lewis W. Lehr(18)....................... 9,017 * -- 9,017 *
Alexis P. Michas(16)(19)................ 4,675 * -- 4,675 *
Rupinder S. Sidhu(16)(20)............... 4,717 * -- 4,717 *
Harry W. Lambert(21).................... 271,894 * -- 271,894 *
Richard W. Roberson(22)................. 119,999 * -- 119,999 *
Robert L. Myers (23).................... 66,633 * -- 66,633 *
All directors and executive officers as
a group (18 persons) (24)(25)......... 1,651,781 5.19 -- 1,651,781 5.19
</TABLE>
- ---------------
* Less than one percent
(1) Shares of Common Stock beneficially owned by the Merrill Lynch Investors
are owned of record as follows: 941,148 shares by Merrill Lynch
Interfunding Inc., 9,816,294 shares by Merrill Lynch Capital Appreciation
Partnership No. II, L.P., 249,567 shares by ML Offshore LBO Partnership No.
II, 244,022 shares by ML Employees LBO Partnership No. I, L.P., 98,597
shares by Merrill Lynch KECALP L.P. 1986, 1,350,577 shares by Merrill Lynch
Capital Appreciation Partnership No. B-IX, L.P., 791,101 shares by ML
Offshore LBO Partnership No. B-IX, 21,419 shares by MLCP Associates L.P.
No. II., 133,856 shares by Merrill Lynch KECALP L.P. 1989, 895,676 shares
by ML IBK Positions, Inc., 46,513 shares by Merchant Banking L.P. No. IV,
15,491 shares by ML Oklahoma Venture Partners, Limited Partnership and
92,843 shares by ML Venture Partners II, L.P. The address for the Merrill
Lynch Investors and each of the aforementioned
(Footnotes continued on following page)
47
<PAGE>
(Footnotes continued from preceding page)
record holders is c/o Merrill Lynch & Co., Inc., Merrill Lynch World
Headquarters, North Tower, New York, New York 10281-1201.
(2) Includes 165,452 shares of Common Stock beneficially owned by Equitable
Variable Life Insurance Company. The address for The Equitable Life
Assurance Society of the United States and Equitable Variable Life
Insurance Company is 1285 Avenue of the Americas, 19th Floor, New York, New
York 10019.
(3) Includes 1,036,400 shares of Common Stock and 605,022 shares of Non-Voting
Common Stock beneficially owned by J.P. Morgan Capital Corporation ("MCC").
MCC may convert shares of Non-Voting Common Stock into shares of Common
Stock to the extent that it would not own more than 4.9% of the voting
securities of the Company. Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan Capital Corporation, was a lender to the Company
until June 15, 1993. See "The 1993 Transactions". The address for MCC is
60 Wall Street, New York, NY 10260.
(4) The address for the Company Employees' Profit Sharing Plan is P.O. Box
4689, Clearwater, Florida 34618. NationsBank of Georgia, N.A. is the
trustee of the Company Employees' Profit Sharing Plan. Total does not
reflect the 192,000 shares of Common Stock of the Company that the Company
has irrevocably committed to deposit to the Company Employees' Profit
Sharing Plan over fiscal 1994, 1995 and 1996.
(5) The address for The Northwestern Mutual Life Insurance Company is 720 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202.
(6) The address for American Home Assurance Company is c/o AIG Global
Investors, Inc. 200 Liberty Street, 19th Floor, New York, New York 10281.
(7) The address for CBC Capital Partners is 270 Park Avenue, 5th Floor, New
York, NY 10017. Chemical Bank, an affiliate of CBC Capital Partners, is a
co-managing agent, administrative agent and participant in the Credit
Agreement.
(8) The address for Wells Fargo & Company is 444 Market Street, 17th Floor, San
Francisco, California 94163. Wells Fargo Bank, an affiliate of Wells
Fargo, Company, is a participant in the Credit Agreement.
(9) The address for First Bank System is c/o First Asset Management 601 Second
Avenue South, Minneapolis, Minnesota 55402-4302.
(10) The address for Monarch Life Insurance Company is One Monarch Place,
Springfield, Massachusetts 01133.
(11) The address for Sears Pension Trust is Xerox Centre, 55 West Monroe Street,
Chicago, Illinois 60603.
(12) Total does not reflect the 40,234 shares of Common Stock transferred by Mr.
Turley to certain family members. Mr. Turley disclaims beneficial ownership
of such shares. Total includes options covering 44,421 shares of Common
Stock which are exercisable as of March 26, 1994 or within 60 days
thereafter. Includes 28,081 shares of Management Restricted Stock which
vest upon the occurrence of Restricted Stock Events but does not reflect
the 6,650 shares of Management Restricted Stock transferred by Mr. Turley
to certain family members. Mr. Turley disclaims beneficial ownership of
such shares.
(13) Total does not reflect 127,393 shares of Common Stock transferred to
certain irrevocable trusts established by Mr. Boyle. Mr. Boyle disclaims
beneficial ownership of such shares. Total includes options covering 20,800
shares of Common Stock which are exercisable as of March 26, 1994 or within
60 days thereafter. Total does not reflect 15,432 shares of Management
Restricted Stock which vest upon the occurrence of Restricted Stock Events
transferred by Mr. Boyle to certain family members. Mr. Boyle disclaims
beneficial ownersip of such shares.
(14) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter. Includes 277
shares of Management Restricted Stock which vest upon the occurrence of
Restricted Stock Events.
(15) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter. Includes 277
shares of Management Restricted Stock which vest upon the occurrence of
Restricted Stock Events.
(16) Messrs. Fitzgibbons, Michas and Sidhu are directors of the Company and
officers of Merrill Lynch Capital Partners, ML & Co. and Merrill Lynch,
Pierce, Fenner & Smith Incorporated. Each disclaims beneficial ownership of
shares of Common Stock beneficially owned by the Merrill Lynch Investors.
The business address for Messrs. Fitzgibbons, Michas and Sidhu is c/o
Merrill Lynch Capital Partners, 767 Fifth Avenue, 48th Floor, New York,
NY 10153
(17) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter. Total
includes 277 shares of Management Restricted Stock which vest upon the
occurrence of Restricted Stock Events.
(18) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter. Total
includes 277 shares of Management Restricted Stock which vest upon the
occurrence of Restricted Stock Events.
(Footnotes continued on following page)
48
<PAGE>
(Footnotes continued from preceding page)
(19) Total includes options covering 4,675 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter, including
options covering 295 shares of Common Stock which vest upon the occurrence
of Restricted Stock Events.
(20) Total includes options covering 4,717 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter, including
options covering 277 shares of Common Stock which vest upon the occurrence
of Restricted Stock Events.
(21) Total includes options covering 20,800 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter. Includes
15,431 shares of Management Restricted Stock which vest upon the occurrence
of Restricted Stock Events.
(22) Total includes options covering 10,400 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter. Includes
6,755 shares of Management Restricted Stock which vest upon the occurrence
of Restricted Stock Events.
(23) Total includes options covering 6,500 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter. Includes
3,687 shares of Management Restricted Stock which vest upon the
occurrence of Restricted Stock Events.
(24) The total number of all directors and executive officers as a group
includes (i) Harry W. Lambert who retired from his positions with the
Company effective September 30, 1993 and is currently a consultant and
advisor to the Company, (ii) Richard W. Roberson, a former Senior Vice
President of the Company and President of Vision Group, who resigned
his employment with the Company in March 1994 and (iii) Thomas E.
Whiddon, the former Vice President/Treasurer of the Company, who
resigned his employment with the Company in March 1994.
(25) Total includes options covering 168,524 shares of Common Stock which are
exercisable as of March 26, 1994 or within 60 days thereafter, including
options covering 941 shares of Common Stock which vest upon the occurrence
of Restricted Stock Events. Total includes 78,500 shares of Management
Restricted Stock which vest upon the occurrence of Restricted Stock Events.
49
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries of the principal terms of the certain outstanding
indebtedness of the Company do not purport to be complete and are subject to the
detailed provisions of, and qualified in their entirety by reference to, the
respective financing agreements, copies of which have been filed or incorporated
by reference as exhibits to the Registration Statement of which this Prospectus
is a part and to which exhibits reference is hereby made. Whenever particular
provisions of such documents are referred to, such provisions are incorporated
by reference as a part of the statements made, and the statements are qualified
in their entirety by such reference.
THE CREDIT AGREEMENT
The Company has entered into the Credit Agreement with the financial
institutions party thereto (the "Lenders"), Chemical Bank, a New York banking
corporation ("Chemical Bank"), and NationsBank of Florida, N.A., a national
banking association ("NationsBank"), as managing agents for the Lenders (in such
capacity, each a "Managing Agent") and as swingline lenders (in such capacity,
each a "Swingline Lender"), and Chemical Bank as administrative agent (in such
capacity, the "Administrative Agent") for the Lenders, the Swingline Lenders and
the fronting banks with respect to letters of credit ("Letters of Credit") and
bankers' acceptances ("Bankers' Acceptances") issued in connection with the
Credit Agreement (collectively, the "Fronting Banks").
The Lenders extended credit (i) on a term basis in an aggregate principal
amount of $650.0 million, which consisted of Tranche A Term Loans in an
aggregate principal amount not to exceed $500.0 million, and Tranche B Term
Loans in an aggregate principal amount of $150.0 million, (ii) on a revolving
basis at any time and from time to time prior to July 31, 1999 (or July 31, 2000
in case such maturity date is extended as provided in the Credit Agreement) in
an aggregate principal amount outstanding not in excess of $300.0 million (the
"Revolving Loans") of which up to (a) $30.0 million of such amount is available
as swingline loans (the "Swingline Loans") and (b) $155.0 million of such amount
is available as Letters of Credit and Bankers' Acceptances. At January 29, 1994,
the Company had approximately $571.7 million outstanding under the Senior Term
Loans, nothing outstanding under the Revolving Credit Facility and $4.5 million
of Bankers' Acceptances and had unused and available borrowing commitments under
the Revolving Credit Facility of $223.9 million.
The Company expects to use the proceeds of Revolving Loan borrowings from
time to time for general corporate purposes of the Company and its subsidiaries.
The proceeds of Swingline Loans are also used for general corporate purposes of
the Company and its subsidiaries. Letters of Credit and Bankers' Acceptances are
used to support obligations of the Company and its subsidiaries incurred in the
ordinary course of business.
The obligations of the Company under the Credit Agreement are
unconditionally guaranteed by each of the material subsidiaries of the Company
(each, a "Guarantor"). The Company and certain of the Guarantors have in
addition pledged capital stock of the Guarantors, and all borrowings under the
Credit Agreement are secured by a first priority lien on all accounts, accounts
receivable, equipment, inventory, proceeds, intellectual property, and certain
other property of the Company, and first priority mortgages on two distribution
centers of the Company located in Texas and the Company's headquarters located
in Florida.
The Tranche A Term Loans and the Revolving Loans bear interest at a rate
equal to, at the Company's option (i) the Alternate Base Rate ("ABR") (defined
in the Credit Agreement as the highest of (a) the prime rate, (b) the federal
funds effective rate plus 1/2 of 1%, and (c) the base CD rate plus 1%) plus 1
3/4% per annum, computed on the basis of actual number of days elapsed over a
365-or 366-day year when the ABR is determined by reference to the prime rate,
and over a 360-day year at all
50
<PAGE>
other times, or (ii) the Adjusted LIBO rate ("LIBOR") (defined in the Credit
Agreement as the product of (a) LIBOR in effect for the applicable interest
period and (b) statutory reserves) plus 2 3/4% per annum, computed on the basis
of actual number of days elapsed over a 360-day year. The spread above ABR and
LIBOR specified above may decrease by 1/2 of 1% in two separate instances if
certain levels of funded debt and ratios of funded debt to specified measures of
earnings are achieved by the Company. The Swingline Loans bear interest at the
rate applicable to ABR Revolving Loans.
The Tranche B Term Loans bear interest at a rate equal to, at the Company's
option (a) ABR plus 2% per annum, computed on the basis of actual number of days
elapsed over a 365-or 366-day year when the ABR is determined by reference to
the prime rate and over a 360-day year at all other times, or (b) LIBOR plus 3%
per annum, computed on the basis of actual number of days elapsed over a 360-day
year.
Interest on ABR borrowings are payable quarterly. Interest on LIBOR
borrowings are payable at the end of the relevant interest period (one, two,
three or six-month periods, except that with respect to six-month periods,
interest shall be payable every three months). The Company pays the Lenders a
commitment fee of 1/2 of 1% per annum on the undrawn amount of the term loan and
revolving facilities. The Company also pays Letter of Credit fees and Bankers'
Acceptance fees, and has paid commitment and other fees to the Managing Agents
and the Lenders.
Principal of the Tranche A Term Loans and the Tranche B Term Loans will be
amortized on the following schedule:
<TABLE><CAPTION>
FISCAL TRANCHE A TRANCHE B
YEAR TERM LOANS TERM LOANS
- ----------------------------------------------------------- -------------- ----------------
<S> <C> <C>
1994....................................................... $ 28,348,220 --
1995....................................................... $ 66,145,853 --
1996....................................................... $ 85,044,670 --
1997....................................................... $ 85,044,670 --
1998....................................................... $ 85,044,670 $ 9,449,408
1999....................................................... $ 80,319,966 $ 18,898,816
2000....................................................... -- $ 113,392,892
</TABLE>
Principal of the Tranche A Term Loans will be amortized in unequal
quarterly payments and mature in full on July 31, 1999. Principal of the Tranche
B Term Loans will be amortized in unequal semi-annual payments and mature in
full on June 15, 2000. The Company has the right to prepay any borrowings under
the Credit Agreement in whole or in part at any time. The Company made scheduled
principal payments of $9.4 million for Tranche A Term Loans due in fiscal 1993
and on January 28, 1994, made scheduled principal payments of $33.1 million for
Tranche A Term Loans due in fiscal 1994.
The Company is required to prepay borrowings under the Credit Agreement
with (i) 50% of the consolidated excess cash flow (as calculated in accordance
with Credit Agreement) of the Company for the preceding fiscal year, (ii) in any
fiscal year, the excess of (a) the aggregate net proceeds of dispositions of
assets of the Company and its subsidiaries over (b) $6.0 million, (iii) in any
fiscal year, the net proceeds of any incurrence of debt (other than indebtedness
permitted under the Credit Agreement), and (iv) all of the net proceeds of any
equity issuance until such prepayment or prepayments equal $75.0 million
(prepayments of approximately $35.8 million of which were made in connection
with the IPO), and thereafter, 75% of such net proceeds. Prepayments are to be
applied (i) pro rata between outstanding Tranche A Term Loans and Tranche B Term
Loans, applied pro rata among scheduled payments, and (ii) after such loans are
paid in full to the Swingline Loans and then the Revolving Loans.
51
<PAGE>
The Credit Agreement restricts acquisition and capital expenditures, other
than, in certain circumstances, expenditures in the form of shares of Common
Stock. In any fiscal year, the Company and its subsidiaries may make acquisition
expenditures in an aggregate amount not to exceed the lesser of (i) 50% of the
previous fiscal year's excess cash flow and (ii) $20.0 million. Subject to
certain limitations, the Company may carry forward to the following fiscal year
a portion of permitted but unused acquisition expenditures from the immediately
preceding fiscal year. The Company may also expend on acquisitions up to $25.0
million of its portion of the net proceeds (25% after the Lenders have received
$75.0 million in prepayments resulting from the issuance of equity) of any
offerings of Common Stock subsequent to the IPO. Each fiscal year the Company
may make capital expenditures, other than acquisition expenditures, in the
following amounts: $45.0 million in fiscal 1994; $45.0 million in fiscal 1995;
$45.0 million in fiscal 1996; $45.0 million in fiscal 1997; $50.0 million in
fiscal 1998; $52.0 million in fiscal 1999; and $54.0 million in fiscal 2000.
Subject to certain limitations, the Company may carry forward to the following
fiscal year a portion of permitted but unused capital expenditures from the
immediately preceding fiscal year. The Company may make additional capital
expenditures, other than acquisition expenditures, from time to time of up to an
aggregate $15.0 million, provided that no more than $5.0 million of such
additional expenditures may be made in any fiscal year. In addition to the
permitted expenditures described above, the Company may make acquisition or
capital expenditures in any fiscal year in an amount equal to the lesser of (i)
the net proceeds of dispositions of assets during such fiscal year and (ii) $6.0
million. The Company may make other acquisitions or capital expenditures with
the consent of the lenders holding more than 50% of the outstanding indebtedness
under the Credit Agreement.
The Credit Agreement contains various restrictive covenants prohibiting the
Company and its subsidiaries from (subject to certain exceptions), (i) incurring
or permitting to exist any indebtedness, other than, among other things, (a)
certain indebtedness specified existing on the date the Company entered into the
Credit Agreement, (b) certain deferred purchase price obligations, (c)
reimbursement obligations in limited amounts, (d) the Debentures and unsecured
indebtedness subordinated thereto, and (e) obligations of the Company and
certain subsidiaries under various stock or option purchase agreements; (ii)
making investments, loans or advances, other than, among others, investments
constituting all or substantially all of the capital stock of any corporation
engaged in the same or similar business as the Company or any subsidiary; (iii)
merger, consolidation, sale of all or any substantial part of any asset, or
acquisitions, except for, among other things, (a) sales of inventory in the
ordinary course of business, (b) the sale of accounts receivables on an ongoing
basis; provided that the purchaser of such receivables may at no time invest
more than $35.0 million therein, (c) the sale or other disposal of the
Insta-Care and certain specified real estate, and (d) the sale of $35.0 million
of assets after July 15, 1993, provided that sales not exceed $10.0 million in
any twelve-month period; (iv) incurring or permitting to exist any liens, other
than, among other things, (a) certain specified liens existing on the date the
Company entered into the Credit Agreement, (b) liens in certain specified
amounts with respect to permitted deferred purchase price obligations, and (c)
liens with respect to consigned goods; (v) declaring or paying dividends or
distributions, except for, among other things, purchases or redemptions of stock
in connection with certain existing management subscription agreements; (vi)
entering into future sale and leaseback transactions; (vii) engaging in any
transaction with any affiliate other than on arms-length terms; (viii) engaging
in business activities not reasonably related to their current business
activities; (ix) prepaying or redeeming indebtedness; (x) amending, waiving,
modifying or terminating certain documents, including, among others, their
respective charter documents, unless such amendment, waiver, modification or
termination is not adverse to the Lenders; (xi) entering into or being obligated
under any lease agreement other than in the ordinary course of business, and
only to the extent that the aggregate lease expenses during each fiscal year do
not exceed certain specified amounts; and (xii) maintaining a bank account with
a financial institution other than a Lender.
52
<PAGE>
The Credit Agreement requires the Company to satisfy certain financial
covenants, including, among other things, on a quarterly basis, with respect to
the four immediately preceding quarters, specified ratios of: (i) funded debt to
earnings before interest, taxes, depreciation and amortization; (ii) interest
coverage; and (iii) fixed charge coverage.
"Events of Default" under the Credit Agreement include (i) default in the
payment when due of any principal payable on the loans under the Credit
Agreement; (ii) default in the payment of any interest, fees or other amounts
payable under the Credit Agreement for a period of three business days; (iii)
the failure to comply with any covenant, condition or agreement contained in the
Credit Agreement or related loan documents; (iv) the failure to pay any
principal or interest due in respect of any indebtedness in a principal amount
in excess of $3.0 million (after giving effect to any applicable grace period);
(v) the commencement of a bankruptcy, insolvency, receivership or similar action
by or against the Company or any material subsidiary; (vi) one or more judgments
in an aggregate amount in excess of $250,000 (to the extent not covered by
insurance) rendered against the Company or any material subsidiary which shall
remain undischarged for a period of 10 days; (vii) certain reportable events
under the Employee Retirement Income Security Act of 1975 ("ERISA"); and (viii)
a change in control, which shall occur, if, among other things, (a) any person
other than Merrill Lynch Capital Partners and its affiliates shall own shares
representing more than 30% of the ordinary voting power of the Company, and (b)
certain specified changes in the composition of the board of directors of the
Company occur.
THE NOTES
The Notes are senior subordinated obligations of the Company, subordinated
in right of payment to all existing and future senior debt of the Company. The
Notes are senior to the 11 1/8% Debentures. The Notes are redeemable at the
option of the Company, in whole or in part, at specified redemption prices, and
upon a change of control (as defined in the Notes Indenture). The Notes bear
interest at 9 1/4% per annum and mature on February 15, 2004.
The Notes Indenture contains certain covenants that, among other things,
restrict (i) the incurrence of additional indebtedness by the Company and its
Restricted Subsidiaries (as defined in the Notes Indenture), (ii) the payment of
dividends on, and redemptions of, capital stock of the Company and the making of
other restricted payments, (iii) the incurrence of restrictions on the ability
of Restricted Subsidiaries to pay dividends or other payments to the Company,
(iv) the incurrence of liens, (v) transactions with affiliates, (vi) the use of
proceeds from the disposition of certain assets of the Company or the sale of
the stock of Restricted Subsidiaries, (vii) the issuance of certain guarantees
and pledges by Restricted Subsidiaries, (viii) the issuance and sale of capital
stock by Restricted Subsidiaries, (ix) the incurrence of other senior
subordinated indebtedness and (x) the ability of the Company to engage in
certain mergers or consolidations or to transfer all or substantially all of its
assets to another person.
Upon a Change of Control (as defined in the Notes Indenture), (i) the
Company will have the option to redeem the Notes and (ii) subject to certain
conditions, the Company will be required to make an offer to purchase each
holder's Notes at 101% of the principal amount thereof plus accrued interest to
the date of redemption. In addition, the Company will, under certain
circumstances, be obligated to make an offer to purchase Notes in the event of
Asset Sales (as defined in the Notes Indenture). The Credit Agreement, however,
prohibits the Company from optionally redeeming the Notes.
THE 11 1/8% DEBENTURES
The 11 1/8% Debentures are subordinated to all existing and future senior
debt of the Company, and are redeemable at the option of the Company, in whole
and in part, at 100% of their principal amount plus accrued interest to the date
of redemption. Interest on the 11 1/8% Debentures accrues and is
53
<PAGE>
payable at the rate of 11 1/8% per annum. The final maturity date of the 11 1/8%
Debentures is May 1, 2001. As of January 29, 1994 the accreted value of 11 1/8%
Debentures outstanding was approximately $134.6 million.
THE INDUSTRIAL DEVELOPMENT REVENUE BONDS
The Company has issued and outstanding $18.25 million in Variable Rate
Demand Industrial Development Revenue Refunding Bonds including $8.25 million
due March 1, 2009 and $10.0 million due May 1, 2013. The variable rate demand
industrial development revenue refunding bonds currently have an interest rate
which is a daily rate established by J.P. Morgan Securities, Inc. and is
indicative of current bid-side yields of high grade tax-exempt securities. At
the Company's option, and under certain conditions, the interest rate may be
changed to a monthly rate or a fixed rate. The bonds are secured by the related
buildings, leases and letters of credit and are guaranteed obligations of the
Company. The reimbursement agreement relating to the letters of credit
incorporates the restrictive covenants and limitations of the Credit Agreement.
THE IFS SALE AND LEASEBACK
The Company has entered into the IFS Sale and Leaseback, which is an
agreement for a sale and leaseback of certain assets related to its photo
processing business. The Company has sold certain photo processing equipment to
Imaging Financial Services, Inc., a Delaware corporation for approximately $35.0
million, and entered into a five-year lease with respect to such equipment. At
the end of the five years, the Company may renew the agreement or terminate the
lease and return the equipment. The IFS Sale and Leaseback also provides the
Company with up to $10.0 million per year in new five-year operating leases for
future expansion or upgrade of photo processing equipment.
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary is subject to the detailed provisions of, and is
qualified in its entirety by reference to, the Company's Restated Certificate of
Incorporation and Restated By-laws, copies of which have been incorporated by
reference as exhibits to the Registration Statement of which this Prospectus is
a part. The authorized capital stock of the Company consists of 100 million
shares of Common Stock and 20 million shares of preferred stock, par value $.01
per share.
COMMON STOCK
The Company's authorized common stock consists of 100 million shares of
Common Stock, par value $.01 per share (of which 3,518,728 shares are Non-Voting
Common Stock (Series I), par value $.01 per share). At March 26, 1994, there
were 31,642,902 shares of Common Stock (including 605,022 shares of Non-Voting
Common Stock) issued and outstanding and employee stock options to purchase an
aggregate of 1,407,004 shares of Common Stock outstanding (of which options to
purchase an aggregate of 466,110 shares of Common Stock were exercisable at
March 26, 1994). In addition, 216,599 shares of Common Stock were reserved for
issuance pursuant to the Company's 1993 Stock Option and Incentive Plan. Subject
to certain conditions, shares of Common Stock held by any Regulated Banking
Stockholder (as defined in the Restated Certificate of Incorporation) may be
converted into the same number of shares of Non-Voting Common Stock and shares
of Non-Voting Common Stock held by any holder may be converted into the same
number of shares of Common Stock.
Voting Rights
Each share of Common Stock entitles the holder thereof to one vote in
elections of directors and all other matters submitted to a vote of
stockholders. The Common Stock does not have cumulative voting rights, which
means that holders of a majority of the outstanding Common Stock voting for the
election of directors can elect all directors then being elected. Each share of
Non-Voting Common Stock does not entitle the holder thereof to any vote on
matters on which the holders of Common Stock are entitled to vote, except on any
amendment, repeal or modification of any provision of the Company's Restated
Certificate of Incorporation which adversely affect the rights of the holders of
Non-Voting Common Stock or as otherwise required by law.
Dividends
Subject to the rights of any preferred stock which may be issued by the
Board of Directors, each share of Common Stock and Non-Voting Common Stock has
an equal and ratable right to receive dividends to be paid from the Company's
assets legally available therefor when, as and if declared by the Board of
Directors. The terms of the Company's outstanding indebtedness restrict the
declaration and payment of dividends on the Common Stock.
Liquidation
In the event of the dissolution, liquidation or winding up of the Company,
the holders of Common Stock and Non-Voting Common Stock are entitled to share
equally and ratably in the assets available for distribution after payments are
made to the Company's creditors and to the holders of any preferred stock of the
Company that may be outstanding at the time.
Other
The holders of shares of Common Stock and Non-Voting Common Stock have no
preemptive, subscription, redemption or conversion rights and are not liable for
further call or assessment. All of the outstanding shares of Common Stock are
fully paid and nonassessable.
Registrar and Transfer Agent
Mellon Securities Trust Company acts as Registrar and Transfer Agent for
the Common Stock.
55
<PAGE>
PREFERRED STOCK
The Company's Restated Certificate of Incorporation provides that the
Company may issue up to 20 million shares of preferred stock and the Board of
Directors of the Company is authorized, without further stockholder action, to
divide any or all shares of authorized preferred stock into series and to fix
and determine the designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As of the date of this Prospectus, the Board of Directors of the
Company has not authorized any series of preferred stock and there are no plans,
agreements or understandings for the issuance of any shares of preferred stock.
MANAGEMENT RESTRICTED STOCK
Prior to the consummation of the IPO, the Management Investors and certain
other employees of Eckerd owned shares of Class B common stock, 60% of which was
fully vested. The remaining non-vested shares of Class B common stock were
designed to vest upon the achievement of specified levels of financial
performance and other criteria. Immediately prior to the consummation of the
IPO, all shares of vested Class B common stock and 50% of the non-vested shares
of Class B common stock were exchanged for Common Stock at the rate of 0.69118
shares of Common Stock for each share of Class B common stock (prior to the
Stock Split). The remaining shares of non-vested Class B common stock were
exchanged at the same exchange ratio for shares of Common Stock subject to
certain restrictions (the "Management Restricted Stock"). The Management
Restricted Stock will vest automatically on July 31, 1998 provided that the
holder thereof is then employed by the Company. The Management Restricted Stock
may vest earlier over a three-year period upon the achievement by the Company of
certain levels of performance as indicated by the market price of the Common
Stock of the Company during each of the 12-month periods ended July 31, 1994,
1995 and 1996 (each of the dates or events upon which the Management Restricted
Stock may vest is referred to as a "Restricted Stock Event"). See "Principal and
Selling Stockholders."
CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Company's Restated Certificate of Incorporation
and Restated By-laws could make more difficult non-negotiated acquisitions of
the Company. The Board of Directors believes that these provisions will help to
assure the continuity and stability of the Board of Directors and the business
strategies and policies of the Company as determined by the Board of Directors.
These provisions could have the effect, however, of discouraging a third party
from making a tender offer or otherwise attempting to obtain control of the
Company even though such an attempt might be beneficial to the Company and its
stockholders.
Pursuant to the Company's Restated Certificate of Incorporation, the Board
of Directors of the Company is divided into three classes serving staggered
three-year terms. See "Management." Directors can be removed from office only
for cause and only by the affirmative vote of the holders of a majority of the
then-outstanding shares of capital stock entitled to vote generally in an
election of directors. Vacancies on the Board of Directors may be filled only by
the remaining directors and not by the stockholders.
The Restated Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company may be
effected only at an annual or special meeting of stockholders, and prohibits
stockholder action by written consent in lieu of a meeting. The Company's
Restated By-laws provide that special meetings of stockholders may be called
only by the chairman, the president or the secretary of the Company and must be
called by any such officer at the request in writing of the Board of Directors.
Stockholders may call a special meeting if the holders of not less than 50% of
all votes entitled to be cast at a special meeting send a written demand to the
Company's Secretary.
56
<PAGE>
The Restated By-laws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or raise business at such meetings must be
received by the Company not less than 60 nor more than 90 days prior to the
anniversary of the previous year's annual meeting, and must contain certain
specified information concerning the person to be nominated or the matters to be
brought before the meeting and concerning the stockholder submitting the
proposal.
The foregoing summary is qualified in its entirety by the provisions of the
Company's Restated Certificate of Incorporation and Restated By-laws, copies of
which have been incorporated by reference as exhibits to the Registration
Statement of which this Prospectus is a part.
LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation provides that, to the
fullest extent permitted by the General Corporation Law of the State of Delaware
(the "DGCL"), directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director. Section 102(7) of the DGCL, however, states that such a provision
may not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, relating to unlawful
dividends, distributions or the repurchase or redemption of stock or (iv) for
any transaction from which the director derives an improper personal benefit.
The Company's Restated By-laws provide that the Company shall indemnify and
hold harmless, to the fullest extent permitted by the DGCL, any person against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with any threatened,
pending or completed legal proceedings in which such person is involved by
reason of the fact that he is or was a director, officer, employee or agent of
the Company (or serving in any such capacity with another business organization
at the request of the Company) if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the Company, such director,
officer, employee or agent may not be indemnified in respect of any claim, issue
or matter as to which he shall have been adjudged to be liable to the Company
unless a court determines otherwise.
The Company has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Restated
Certificate of Incorporation. These agreements, among other things, indemnify
the Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such person in any
action or proceeding, including any action by or in the right of the Company, on
account of services as a director or officer of the Company or as a director or
officer of any subsidiary of the Company, or as a director or officer of any
other company or enterprise to which the person provides services at the request
of the Company.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement, as amended, among the Company,
the Merrill Lynch Investors, the Management Investors and the other stockholders
of Eckerd who held shares prior to the IPO (the "Registration Rights
Agreement"), holders of at least 25% of the Common Stock have the right to
demand registration under the Securities Act of their shares of Common Stock.
Subject to certain exceptions, the Company will be required, at its expense, to
register such shares and to include in the registration on request all other
shares owned by parties to the Registration Rights Agreement (or their permitted
transferees) who notify the Company of their request. In addition, in the event
the Company proposes to register any of its equity securities under the
Securities Act, each party to the
57
<PAGE>
Registration Rights Agreement (or its permitted transferee) has the incidental
right, subject to certain exceptions, to have the shares of the Common Stock
then owned by it included in such registration. The Company has agreed that, in
the event of any registration of securities owned by a party to the Registration
Rights Agreement (or permitted transferee) in accordance with the provisions
thereof, it will indemnify such person, and certain related persons, against
liabilities incurred in connection with such registration, including liabilities
arising under the Securities Act.
The registration rights of the existing stockholders are subject to certain
limitations intended to prevent undue interference with the Company's ability to
distribute securities, including, without limitation, the provisions that (i)
demand registration rights may not be exercised (other than registration on Form
S-4 or S-8) within six months after the effective date of the Company's most
recent registration statement and (ii) the holders of more than 1% of the
outstanding Common Stock will not offer for public sale any shares owned by them
during the seven days before or 120 days after the effective date of any
registration statement filed pursuant to the Registration Rights Agreement.
The Company is effecting the Offerings pursuant to the exercise by the
Merrill Lynch Investors and the other Selling Stockholders of their demand
registration rights under the Registration Rights Agreement.
58
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain of the United States
federal tax consequences of the ownership and disposition of shares of Common
Stock by non-U.S. holders. For purposes of this discussion, a "non-U.S. holder"
is any person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any State, or (iii) an estate or trust whose
income is includible in gross income for United States federal income tax
purposes regardless of its source. This discussion does not consider any
specific facts or circumstances that may apply to a particular non-U.S. holder.
Furthermore, the following discussion is based on current provisions of the
Code, and administrative and judicial interpretations of the Code as of the date
hereof, all of which are subject to change. Each prospective non-U.S. holder is
urged to consult its own tax adviser with respect to the United States federal
income and estate tax consequences and United States state and local tax
consequences of owning and disposing of shares of Common Stock, as well as any
tax consequences arising under the laws of any other taxing jurisdiction.
Dividends. In general, dividends paid to a non-U.S. holder will be subject
to United States withholding tax at a 30% rate (or a lower rate prescribed by an
applicable tax treaty) unless the dividends are (i) effectively connected with a
trade or business carried on by the non-U.S. holder within the United States and
(ii) if a tax treaty applies, attributable to a United States permanent
establishment maintained by the non-U.S. holder. Dividends effectively connected
with such trade or business or attributable to such permanent establishment will
generally be subject to United States federal income tax at regular rates and,
in the case of a non-U.S. holder which is a corporation, may be subject to the
"branch profits tax." To determine the applicability of a tax treaty providing
for a lower rate of withholding, dividends paid to an address in a foreign
country are presumed under current Treasury regulations to be paid to a resident
of that country. Treasury regulations proposed in 1984 which have not been
finally adopted, however, would require non-U.S. holders to file certain forms
to obtain the benefit of any applicable tax treaty providing for a lower rate of
withholding tax on dividends.
Gain on Disposition. A non-U.S. holder generally will not be subject to
United States federal income tax on any gain recognized on a disposition of a
share of Common Stock unless (i) the Company is or has been a "U.S. real
property holding corporation" for United States federal income tax purposes
(which the Company does not believe that it is or is likely to become) and the
non-U.S. holder disposing of the share owned, directly or constructively, at any
time during the five-year period preceding the disposition, more than five
percent of the Common Stock; (ii) the gain is effectively connected with a trade
or business carried on by the non-U.S. holder within the United States and, if a
tax treaty applies, attributable to a United States permanent establishment
maintained by the non-U.S. holder; (iii) such non-U.S. holder is an individual,
who holds the share as a capital asset and who is present in the United States
for 183 days or more in the taxable year of the disposition, and either (a) such
non-U.S. holder has a "tax home" (as defined for U.S. federal income tax
purposes) in the United States and the gain from the disposition is not
attributable to an office or other fixed place of business maintained by such
non-U.S. holder outside of the United States or (b) the gain from the
disposition is attributable to an office or other fixed place of business
maintained by such non-U.S. holder in the United States; or (iv) such non-U.S.
holder is subject to tax pursuant to provisions of the Code applicable to
certain United States expatriates.
Federal Estate Tax. Shares of Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as defined for United States
federal estate tax purposes) of the United States at the time of death will be
includible in the individual's gross estate for United States federal estate tax
purposes unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to U.S. federal estate tax on the property
includible in the estate for U.S. federal estate tax purposes.
59
<PAGE>
Backup Withholding and Reporting Requirements. The Company must report
annually to the IRS and to each non-U.S. holder the amount of dividends paid to,
and the tax withheld with respect to, such non-U.S. holder. These reporting
requirements apply regardless of whether withholding was reduced or eliminated
by an applicable tax treaty. Copies of these returns may be made available under
the provisions of a specific treaty or agreement with the tax authorities in the
country in which the non-U.S. holder resides.
United States backup withholding tax (which generally is a tax imposed at
the rate of 31% on certain payments to persons that fail to furnish the
information required under the United States information reporting requirements)
will generally not apply to dividends paid on Common Stock to a non-U.S. holder
at an address outside the United States.
The payment of the proceeds from the disposition of Common Stock to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the holder, under penalties of perjury,
certifies, among other things, its status as a non-U.S. holder or otherwise
establishes an exemption. The payment of the proceeds from the disposition of
Common Stock to or through a non-U.S. office of a broker will generally, except
as noted below, not be subject to backup withholding and information reporting.
In the case of proceeds from a disposition of Common Stock paid to or through a
non-U.S. office of a broker that is (i) a U.S. person, (ii) a "controlled
foreign corporation" for United States federal income tax purposes or (iii) a
foreign person 50% or more of whose gross income from all sources for certain
periods was effectively connected with a United States trade or business (a)
information reporting will apply unless the broker has documentary evidence in
its files that the owner is a non-U.S. holder and the broker has no actual
knowledge to the contrary and (b) backup withholding will not apply unless the
broker has actual knowledge that the holder is not a non-U.S. holder.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded (or credited against the non-U.S. holder's
United States federal income tax liability, if any), provided that the required
information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to the Common Stock is
subject to change.
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. Purchase
Agreement (the "U.S. Purchase Agreement") among the Company, the Selling
Stockholders and each of the underwriters named below (the "U.S.
Underwriters"), the Selling Stockholders have agreed to sell to each of
the U.S. Underwriters, and each of the U.S. Underwriters has severally
agreed to purchase, the aggregate number of shares of Common Stock set
forth opposite its name below.
<TABLE><CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................................
Bear, Stearns & Co. Inc..............................................................................
Morgan Stanley & Co. Incorporated....................................................................
Raymond James & Associates, Inc. ....................................................................
-----------
Total.................................................................................. 4,000,000
-----------
-----------
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear,
Stearns & Co. Inc., Morgan Stanley & Co. Incorporated and Raymond James &
Associates, Inc. are acting as representatives (the "U.S. Representatives") of
the several U.S. Underwriters.
The Company and the Selling Stockholders have also entered into an
International Purchase Agreement (the "International Purchase Agreement")
with certain underwriters outside the United States (the "International
Underwriters") for whom Merrill Lynch International Limited ("Merrill
Lynch International"), Bear, Stearns International Limited, Morgan Stanley
& Co. International Limited and Raymond James & Associates, Inc. are
acting as representatives (the "International Representatives" and, together
with the U.S. Representatives, the "Representatives"). Subject to the terms and
conditions set forth in the International Purchase Agreement, and concurrently
with the sale of 4,000,000 shares to the U.S. Underwriters, the Selling
Stockholders have agreed to sell to the International Underwriters, and the
International Underwriters severally have agreed to purchase, an aggregate of
1,000,000 shares. The public offering price per share and the underwriting
discount per share are identical under the U.S. Purchase Agreement and the
International Purchase Agreement.
In the U.S. Purchase Agreement the several U.S. Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
shares being sold pursuant to each such Agreement if any of the shares being
sold pursuant to such Agreement are purchased and in the International Purchase
Agreement the several International Underwriters have agreed, subject to the
61
<PAGE>
terms and conditions set forth therein, to purchase all the shares being sold
pursuant to such agreement if any of the shares being sold pursuant to such
agreement are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters and International Underwriters (collectively,
the "Underwriters") may be increased. The closings with respect to the sale of
the shares to be purchased by the U.S. Underwriters and the International
Underwriters are conditioned upon one another.
The U.S. Underwriters propose initially to offer the shares to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers (who may include U.S. Underwriters) at such price less a
concession not in excess of $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Selling Stockholders have granted to the U.S. Underwriters options to
purchase up to an aggregate of 600,000 additional shares of Common Stock, and
the International Underwriters options to purchase up to an aggregate of 150,000
shares of Common Stock, in each case exercisable for 30 days after the date
hereof, to cover over-allotments, if any, at the public offering price, less the
underwriting discount. To the extent that the U.S. Underwriters exercise these
options, each of the U.S. Underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage of such shares
that the number of shares of Common Stock to be purchased by it shown in the
foregoing table bears to the total number of shares of Common Stock initially
offered to the U.S. Underwriters hereby.
The U.S. Underwriters and the International Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the U.S. Underwriters and the International
Underwriters of such number of shares of Common Stock as may be mutually agreed.
The price of any shares of Common Stock so sold shall be the public offering
price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to persons who are non-United States or non-Canadian
persons or to persons they believe intend to resell to persons who are
non-United States or non-Canadian persons, and the International Underwriters
and any dealer to whom they sell shares of Common Stock will not offer to sell
or sell shares of Common Stock to United States or Canadian persons or to
persons they believe intend to resell to United States or Canadian persons,
except, in each case, for transactions pursuant to the Intersyndicate Agreement.
For information regarding the ownership by the Merrill Lynch Investors of
Common Stock and the representation of affiliates of ML & Co. on the Board of
Directors of the Company, see "Management" and "Principal and Selling
Stockholders."
Merrill Lynch and affiliates of Merrill Lynch have from time to time
performed, and continue to perform, various investment banking services for the
Company, for which customary compensation has been received, including, but not
limited to, investment banking services in connection with the Acquisition and
related transactions, acting as underwriter of the Company's 11 1/8% Debentures,
13% Discount Debentures and the Notes and acting as one of the representatives
of the underwriters in the IPO.
The Common Stock is listed on the New York Stock Exchange under the symbol
"ECK." Because the Company is an affiliate of Merrill Lynch, one of the
underwriters, the U.S. Offering is being conducted in accordance with the
applicable provisions of Schedule E of the By-Laws of the National Association
of Securities Dealers, Inc. In accordance with Schedule E, no NASD member
participating in the distribution is permitted to confirm sales to accounts over
which it exercises discretionary authority without prior specific written
consent. In addition, under the rules of the New York Stock
62
<PAGE>
Exchange, Merrill Lynch is precluded from issuing research reports that make
recommendations with respect to the Common Stock for so long as the Company is
an affiliate of Merrill Lynch.
Pursuant to the Registration Rights Agreement, each holder of at least 1%
of the outstanding shares of Common Stock who is a party thereto has agreed, for
a period beginning seven days before, and ending 120 days after, the effective
date of the Registration Statement of which this Prospectus is a part, not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of Common Stock or any securities convertible into or
exchangeable for Common Stock, or any rights or warrants to acquire Common
Stock. See "Risk Factors--Shares Eligible for Future Sale." Approximately 54.22%
of the shares of Common Stock outstanding upon consummation of the Offerings
will be subject to such provision. In addition, each of the Company and the
executive officers and directors of the Company will agree, for a period of
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, not to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock, or any rights or warrants to acquire Common Stock without the prior
written consent of the Representatives of the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the U.S.
Underwriters and the International Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
Merrill Lynch from time to time performs investment banking and other
financial services for the Company and affiliates of Merrill Lynch are the
Merrill Lynch Investors. See "Principal and Selling Stockholders." In addition
to Merrill Lynch, certain of the Underwriters, from time to time, perform
investment banking and other financial services for the Company.
63
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Common Stock will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York and
James M. Santo, Esq., Senior Vice President, Administration of the Company and
for certain of the Selling Stockholders by Skadden, Arps, Slate, Meagher & Flom.
Certain legal matters will be passed upon for certain of the Selling
Stockholders by Solovay & Edlin, P.C., New York, New York. Certain legal matters
will be passed upon for the Underwriters by Shearman & Sterling, New York, New
York. Certain partners of Skadden, Arps, Slate, Meagher & Flom are investors in
the Company. Skadden, Arps, Slate, Meagher & Flom and Shearman & Sterling
occasionally act as counsel to ML & Co. and its affiliates, including Merrill
Lynch Capital Partners and the Merrill Lynch Investors, and Skadden, Arps,
Slate, Meagher & Flom occasionally acts as counsel to the other Underwriters.
EXPERTS
The consolidated financial statements and schedules of the Company and
subsidiaries as of January 29, 1994 and January 30, 1993, and for the years
ended January 29, 1994, January 30, 1993 and February 1, 1992, included herein
and elsewhere in the Registration Statement of which this Prospectus is a part
or appearing in the Company's Annual Report on Form 10-K for the period ended
January 29, 1994, as amended by the Company's Annual Report on Form 10-K/A for
the period ended January 29, 1994, and incorporated herein by reference, have
been included or incorporated by reference in reliance upon the report of KPMG
Peat Marwick, independent certified public accountants, included or incorporated
by reference herein, and upon the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Company with the Commission, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and should also be available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048; and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Additionally,
such reports and other information concerning the Company are available for
inspection at the offices of the New York Stock Exchange located at 20 Broad
Street, New York, New York 10005, on which the Common Stock is listed, and at
the offices of the American Stock Exchange located at 86 Trinity Place, New
York, New York 10006, on which the 11 1/8% Debentures are listed.
This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock offered hereby. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and, in each
instance, reference is made to such copy filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected without charge at the office of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
thereof may be obtained from the Commission at prescribed rates.
64
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-4844) pursuant to the Exchange Act, are incorporated herein by reference and
made a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 1994 dated March 31, 1994.
2. The description of the Common Stock contained in the Registration
Statement on Form 8-A dated July 14, 1993, as amended by Amendment
No. 1 to the Registration Statement on Form 8-A dated August 5, 1993.
3. The Company's Annual Report on Form 10-K/A for the fiscal year ended
January 29, 1994 dated April 14, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock offered hereby shall
be deemed to be incorporated in this Prospectus by reference and to be a part
hereof from the date of filing of such documents.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any and all of the documents incorporated herein by reference (other
than exhibits unless such exhibits are specifically incorporated herein by
reference). Requests for such copies should be directed to the Treasurer, Eckerd
Corporation, 8333 Bryan Dairy Road, Largo, Florida 34647.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
65
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of January 29, 1994 and January 30,
1993.................................................................. F-3
Consolidated Statements of Operations for the years ended January 29,
1994, January 30, 1993 and February 1, 1992........................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended January 29, 1994, January 30, 1993 and February 1, 1992......... F-5
Consolidated Statements of Cash Flows for the years ended January 29,
1994, January 30, 1993 and February 1, 1992........................... F-6
Notes to Consolidated Financial Statements.............................. F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ECKERD CORPORATION AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Eckerd
Corporation and subsidiaries as of January 29, 1994 and January 30, 1993, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for each of the years in the three-year period ended
January 29, 1994. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eckerd
Corporation and subsidiaries at January 29, 1994 and January 30, 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 29, 1994, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick
Tampa, Florida
March 18, 1994
F-2
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 29, 1994 AND JANUARY 30, 1993
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE><CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term interest-bearing deposits plus accrued interest................ $ 12,110 18,642
Receivables, less allowance for doubtful receivables of $5,000 and $5,000.......... 92,672 78,555
Merchandise inventories............................................................ 765,653 725,231
Prepaid expenses and other current assets.......................................... 6,232 2,824
------------ ------------
Total current assets....................................................... 876,667 825,252
------------ ------------
Property, plant and equipment, at cost:
Land............................................................................... 19,260 19,269
Buildings.......................................................................... 73,404 68,196
Furniture and equipment............................................................ 273,867 326,145
Transportation equipment........................................................... 13,050 14,660
Leasehold improvements............................................................. 127,480 123,344
------------ ------------
507,061 551,614
Less accumulated depreciation................................................... 238,425 223,488
------------ ------------
Net property, plant and equipment.......................................... 268,636 328,126
------------ ------------
Excess of cost over net assets acquired, less accumulated amortization of $15,083 and
$12,837.............................................................................. 31,594 29,693
Favorable lease interests, less accumulated amortization of $357,912 and $314,917.... 177,803 205,057
Unamortized debt expenses............................................................ 38,779 19,775
Other assets......................................................................... 24,025 11,019
------------ ------------
$ 1,417,504 1,418,922
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank debit balances................................................................ $ 40,974 12,231
Current installments of long-term debt (note 4).................................... 1,905 3,669
Accounts payable................................................................... 363,136 266,468
Accrued interest................................................................... 17,749 31,962
Accrued payroll.................................................................... 69,085 68,536
Other accrued expenses............................................................. 77,230 75,359
------------ ------------
Total current liabilities.................................................. 570,079 458,225
------------ ------------
Other noncurrent liabilities......................................................... 73,461 74,958
Long-term debt, excluding current installments (note 4).............................. 952,986 1,044,553
14 1/2% cumulative redeemable preferred stock (note 6)............................... -- 75,000
Voting common stock of $.01 par value held by the management group and key employees;
0 and 2,432,456 shares, respectively................................................. -- 9,477
Stockholders' equity (deficit) (notes 1 and 7):
Preferred stock of $.01 par value. Authorized 20,000,000 shares; none issued or
outstanding.......................................................................... -- --
Voting common stock of $.01 par value. Authorized 96,481,272 shares; issued
31,031,811 and 23,631,264............................................................ 310 236
Nonvoting common stock of $.01 par value. Authorized 3,518,728 shares; issued
605,022 shares....................................................................... 6 6
Capital in excess of par value..................................................... 225,560 153,500
Retained deficit................................................................... (404,898) (397,033)
------------ ------------
Total stockholders' deficit................................................ (179,022) (243,291)
Commitments, related party transactions and subsequent event (notes 8, 9 and 10).....
------------ ------------
$ 1,417,504 1,418,922
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993, AND FEBRUARY 1, 1992
(IN THOUSANDS)
<TABLE><CAPTION>
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Sales and other operating revenue.................................... $ 4,190,539 3,887,027 3,739,852
------------- ------------- -------------
Costs and expenses:
Cost of sales, including store occupancy, warehousing, and delivery
expense.............................................................. 3,175,375 2,896,479 2,738,545
Operating and administrative expenses.............................. 857,980 855,165 854,209
------------- ------------- -------------
4,033,355 3,751,644 3,592,754
------------- ------------- -------------
Earnings before interest expenses.......................... 157,184 135,383 147,098
------------- ------------- -------------
Interest expenses:
Interest expense, net.............................................. 105,999 130,435 126,681
Amortization of original issue discount and deferred debt
expenses............................................................. 7,216 6,969 16,513
------------- ------------- -------------
Total interest expenses.................................... 113,215 137,404 143,194
------------- ------------- -------------
Earnings (loss) before income taxes and extraordinary
items................................................................ 43,969 (2,021) 3,904
Income tax provision (note 5)........................................ 2,556 2,864 2,927
------------- ------------- -------------
Earnings (loss) before extraordinary items................. 41,413 (4,885) 977
Extraordinary items:
Early retirement of debt and preferred stock, net of tax benefit of
$929 (note 4(a))..................................................... (44,354) -- --
Tax effect of utilization of net operating loss carryforward (note
5)................................................................... -- 762 1,680
------------- ------------- -------------
Net earnings (loss) for the year........................... (2,941) (4,123) 2,657
Preferred stock dividends 4,924 10,815 10,823
------------- ------------- -------------
Net loss available to common shares........................ $ (7,865) (14,938) (8,166)
------------- ------------- -------------
------------- ------------- -------------
Earnings (loss) per common share:
Earnings (loss) before extraordinary items......................... $ 1.24 (.59) (.38)
Extraordinary items................................................ (1.51) .03 .06
------------- ------------- -------------
Net loss................................................... $ (.27) (.56) (.32)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS)
<TABLE><CAPTION>
CAPITAL TOTAL
VOTING NONVOTING IN EXCESS RETAINED STOCKHOLDERS'
COMMON COMMON OF PAR EARNINGS EQUITY
STOCK STOCK VALUE (DEFICIT) (DEFICIT)
----------- --------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance at February 2, 1991......................... $ 236 6 153,500 (373,929) (220,187)
Net earnings for the year........................... -- -- -- 2,657 2,657
14 1/2% preferred stock cash dividends.............. -- -- -- (10,823) (10,823)
----------- --------------- --------- ---------- ------------
Balance at February 1, 1992......................... 236 6 153,500 (382,095) (228,353)
Net loss for the year............................... -- -- -- (4,123) (4,123)
14 1/2% preferred stock cash dividends.............. -- -- -- (10,815) (10,815)
----------- --------------- --------- ---------- ------------
Balance at January 30, 1993......................... 236 6 153,500 (397,033) (243,291)
Reclassification of common stock previously subject
to put options...................................... 21 -- 7,279 -- 7,300
Common stock sold under employee stock option
plan................................................ 1 -- 272 -- 273
Common stock sold in a Public Stock Offering, net of
expenses of sale.................................... 52 -- 64,509 -- 64,561
Net loss for the year -- -- -- (2,941) (2,941)
14 1/2% preferred stock cash dividends.............. -- -- -- (4,924) (4,924)
----------- --------------- --------- ---------- ------------
Balance at January 29, 1994......................... $ 310 6 225,560 (404,898) (179,022)
----------- --------------- --------- ---------- ------------
----------- --------------- --------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS)
<TABLE><CAPTION>
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) for the year....................................... $ (2,941) (4,123) 2,657
Adjustments to reconcile net earnings (loss) for the year to net cash
provided by operating activities:
Extraordinary charge related to early retirement of debt and
preferred stock.......................................................... 45,283 -- --
Depreciation and amortization..................................... 85,068 92,759 97,383
Amortization of original issue discount and deferred debt
expenses................................................................. 7,216 6,969 16,513
Increase in receivables........................................... (13,867) (633) (5,907)
Increase in merchandise inventories............................... (35,455) (19,104) (15,690)
Decrease (increase) in prepaid expenses and other current
assets................................................................... (3,408) 1,108 407
Increase in accounts payable and accrued expenses................. 87,393 1,963 30,595
------------ ----------- -----------
Net cash provided by operating activities...................... 169,289 78,939 125,958
------------ ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment............................. (33,091) (51,389) (49,410)
Sale of property, plant and equipment.................................. 37,942 3,303 2,103
Sale/Purchase of long-term investments (net)........................... 1,173 1,161 (1,068)
Acquisition of certain drug store assets............................... (14,314) (30,475) --
Other.................................................................. (10,158) 1,437 (2,092)
------------ ----------- -----------
Net cash used in investing activities.......................... (18,448) (75,963) (50,467)
------------ ----------- -----------
Cash flows from financing activities:
Increase (decrease) in bank debit balances............................. 28,743 (5,919) 10,927
14 1/2% preferred stock cash dividends................................. (4,924) (10,815) (10,823)
Additions to long-term debt............................................ 1,476 1,435 4,227
Reductions of long-term debt........................................... (3,769) (4,730) (5,561)
Net reductions of prior credit agreement............................... (221,723) 34,913 (70,515)
Net additions under new credit agreement............................... 576,189 -- --
Redemption of 14 1/2% preferred stock.................................. (75,000) -- --
Common stock sold in a public stock offering, net of expenses of
sale..................................................................... 64,561 -- --
Issuance of 9 1/4% senior subordinated notes........................... 200,000 -- --
Redemption of 13% and 11 1/8% subordinated debentures.................. (490,165) -- --
Redemption of senior notes............................................. (168,000) -- --
Federal and state income taxes......................................... -- (111) (1,293)
Other, including redemption fees and deferred financing costs.......... (64,761) (7,545) (2,948)
------------ ----------- -----------
Net cash provided by (used in) financing activities............ (157,373) 7,228 (75,986)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents..................... (6,532) 10,204 (495)
Cash and short-term interest-bearing deposits plus accrued interest at
beginning of year........................................................ 18,642 8,438 8,933
------------ ----------- -----------
Cash and short-term interest-bearing deposits plus accrued interest at
end of year.............................................................. $ 12,110 18,642 8,438
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) ORGANIZATION OF BUSINESS
(a) Acquisitions and Merger
On April 30, 1986, all of the outstanding capital stock of Jack Eckerd
Corporation (predecessor company) was acquired by certain affiliates of Merrill
Lynch Capital Partners, Inc., affiliates of certain banks which provided a
portion of the financing for the acquisition and certain members of management.
The acquisition has been accounted for using the purchase method of accounting.
The cost of acquiring the capital stock has been allocated to assets based on
fair market values at April 30, 1986 as determined by American Appraisal
Associates, Inc.
The excess of cost over net assets acquired at May 1, 1986, as well as
subsequent acquisitions, are being amortized on a straight-line basis over a
period of 20 years.
During 1992 and 1993, Eckerd Corporation (Company) purchased fifty-two drug
stores (7 stores were closed subsequent to the acquisition) in three
transactions at an aggregate cost of $41,926. The operations of such stores,
which have been included in the consolidated financial statements from dates of
acquisition, are not material to the Company and, accordingly, pro forma
comparative operating numbers are not presented.
(b) Initial Public Offering and Common Stock Exchange
On August 12, 1993, the Company completed an initial public offering (IPO)
in which it issued and sold 5,175,000 shares of its Common Stock par value $.01
per share (Common Stock) for $14.00 per share. In addition in connection with
the IPO, the Company amended its Restated Certificate of Incorporation to
effect, among other things: i) the reclassification of its Class A common stock
and Class B common stock into Common Stock at certain specified rates
(Reclassification); ii) a 2-for-3 reverse stock split (Stock Split); iii) the
adoption of certain provisions, such as a classified board of directors and the
prohibition of stockholder action by written consent, which could make
non-negotiated acquisitions of the Company more difficult, and iv) the change of
the Company's name from "Jack Eckerd Corporation" to "Eckerd Corporation."
In connection with the consummation of the IPO, the shareholders of EDS
Holdings Inc. (EDS) exchanged their shares for shares of the Company's common
stock. This transaction was accounted for as a combination of companies under
common control in a manner similar to a pooling of interests.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts have
been eliminated in the consolidation.
(b) Definition of Fiscal Year
The fiscal year ends on the Saturday nearest January 31. Fiscal years 1993,
1992 and 1991 ended January 29, 1994, January 30, 1993 and February 1, 1992,
respectively, consisted of 52 weeks.
(c) Merchandise Inventories
Inventories consist principally of merchandise held for resale and are
based on physical inventories taken throughout the year. Inventories are stated
at the lower of cost (last-in, first-out--LIFO) or
F-7
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
market. At January 29, 1994 and January 30, 1993, if the first-in, first-out
(FIFO) method of valuing inventories had been used by the Company, inventories
would have been higher than reported by approximately $66,100 and $57,600,
respectively.
(d) Income Taxes
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS), "Accounting for Income Taxes." Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect of a change in tax rates on deferred tax
assets or liabilities is recognized in income in the period that included the
enactment.
Previously, the Company accounted for income taxes under Accounting
Principles Board Opinion No. 11, which did not give recognition to future events
other than the recovery of assets and settlement of liabilities at their
carrying amounts. The adoption of SFAS No. 109 had no material effect on the
Company's financial position or results of operations. Prior years' financial
statements were not restated.
(e) Depreciation Policy and Maintenance and Repairs
Plant and equipment is depreciated principally by the straight-line method
over the estimated useful lives of such assets. The principal lives used to
compute depreciation are:
Buildings........................................................ 16-45
Furniture and equipment.......................................... 1-10
Transportation equipment......................................... 1-8
Leasehold improvements........................................... 2-20
---------
---------
Maintenance and repairs are charged to expense as incurred. The Company's
policy is to capitalize expenditures for renewals and betterments and to reduce
the asset accounts and the related allowance for depreciation for the cost and
accumulated depreciation of items replaced, retired or fully depreciated.
The 1992 balances for plant and equipment have been restated to reflect the
write-off of certain fully depreciated assets during 1993.
(f) Favorable Lease Interests
Favorable lease interests represent the present value of the excess of
current market rents at dates of acquisition over the below market rents of the
Company's then existing operating leases of real property (principally store
locations). Such costs are amortized by the interest method over the lives of
the favorable leases averaging approximately twenty years.
F-8
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(g) Unamortized Debt Expenses
Unamortized debt expenses represent underwriting discounts, professional
fees and other costs related to the two issues of subordinated debentures which
are amortized over the life of the related debentures; and professional fees and
other costs related to the Company's long-term debt refinancings (see note 4)
which are amortized over the life of the related agreements.
(h) Original Issue Debt Discount
Original issue debt discount is the difference between the principal amount
of the two issues of subordinated debentures and their issue price to the
public. Such discount which is treated as a reduction of the principal amount of
such debentures is amortized to provide a level interest cost over the term of
the respective debenture issues.
(i) Advertising Costs
Advertising costs are expensed when incurred and were $26,758, $45,918 and
$47,998 for the years ended January 29, 1994, January 30, 1993 and February 1,
1992, respectively.
(j) Reclassifications
Certain amounts have been reclassified in the 1991 and 1992 financial
statements to conform to the 1993 financial statement presentation.
(k) Statement of Cash Flows
The Company considers all liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
During 1992, the Company converted debentures, which were held by certain
members of management, totaling $8,092 to 1,304,289 shares of Common Stock.
Cash paid for interest was $120,329, $128,896 and $116,661 for the years
ended January 29, 1994, January 30, 1993 and February 1, 1992, respectively.
(1) Earnings (Loss) Per Share
Primary earnings per share have been computed based on the weighted average
number of shares of common stock outstanding during each fiscal year (29,392,805
in 1993, 26,573,902 in 1992, and 25,677,103 in 1991) restated for the August 12,
1993 Reclassification and Stock Split.
(3) EMPLOYEES' BENEFIT PLANS
(a) Profit Sharing Plan
The Company has in effect a noncontributory profit sharing plan which
covers all regular, full-time employees. The Company makes annual contributions
to the Plan at the discretion of the Company's Board of Directors. All funds are
held by a bank as trustee under a trust agreement. Included in operating and
administrative expenses are charges accrued for contributions to the Plan of
$8,765, $7,433 and $8,517 for January 29, 1994, January 30, 1993 and February 1,
1992, respectively.
F-9
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(3) EMPLOYEES' BENEFIT PLANS--(CONTINUED)
Plan assets at fair value, consisting of fixed income securities, the
Company's stock and listed stocks, amounted to approximately $199.4 million for
the plan year ended December 31, 1993.
(b) Pension Plans
The Company has in effect a noncontributory pension plan covering all
full-time employees who qualify as to age and length of service. Benefits are
computed based on the average annual compensation for the five consecutive years
that produce the highest average during the final ten years of creditable
service. The Company's policy is to fund the Plan in accordance with minimum
Internal Revenue Service (IRS) requirements.
The Company accounts for pension costs in accordance with Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions."
The following table sets forth the funded status of the Company's pension
plan as of the most recent actuarial measurement dates, December 31, 1993 and
1992:
<TABLE><CAPTION>
1994 1993
---------- ----------
(PROJECTED)
<S> <C> <C>
Accumulated benefit obligation at December 31, 1993 (including vested benefits of $24,210
and $22,756 at January 1, 1993 and January 1, 1992, the most recent valuation dates)... $ (36,829) $ (27,841)
Effect of anticipated future compensation levels and other events........................ (1,806) --
---------- ----------
Projected benefit obligation for service rendered to date................................ (38,635) (27,841)
Plan assets at fair value, consisting of fixed income securities and listed stocks....... 38,139 38,361
---------- ----------
Plan assets in excess (less than) projected benefit obligation................. (496) 10,520
Unrecognized prior service cost.......................................................... (1,281) (1,442)
Unrecognized net (gain) loss............................................................. 3,974 (4,947)
Unrecognized net asset at January 1, 1987 being amortized over 13 years.................. (3,454) (4,131)
---------- ----------
Accrued pension cost........................................................... $ (1,257) --
---------- ----------
---------- ----------
</TABLE>
Net periodic pension costs for the years ended January 29, 1994, January
30, 1993 and February 1, 1992 included the following (income) expense
components:
<TABLE><CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Service costs (benefits earned during the period)........................... $ 2,818 $ 1,300 $ 1,197
Interest cost on projected benefit obligation............................... 2,548 2,245 2,351
Return on assets............................................................ (3,271) (2,707) (2,710)
Unrecognized prior service cost............................................. (161) (161) (161)
Amortization of transitional asset.......................................... (677) (677) (677)
---------- ---------- ----------
Net periodic pension cost......................................... $ 1,257 -- --
---------- ---------- ----------
---------- ---------- ----------
Assumptions used in determining net periodic pension cost were:
Weighted average discount rate............................................ 7.5% 9% 9%
Weighted average long-term rate of return on assets....................... 9% 9% 9%
Rate of compensation increases............................................ 5% 5% 5%
</TABLE>
F-10
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(3) EMPLOYEES' BENEFIT PLANS--(CONTINUED)
The Company has in effect an Executive Supplemental Benefit Plan to provide
additional income for its executives after their retirement as well as
pre-retirement death benefits to beneficiaries of such executives. Annual
benefits will generally be no greater than 25 percent of the participant's
salary mid-point on the date the participant retires or separates from service
with the Company.
(4) LONG-TERM DEBT
Long-term debt at January 29, 1994 and January 30, 1993 was:
<TABLE><CAPTION>
JANUARY 29, JANUARY 30,
1994 1993
----------- -------------
<S> <C> <C>
Tranche A term loans, due July 31, 1999 (a).......................................... $ 429,948 --
Tranche B term loans, due June 15, 2000 (a).......................................... 141,741 --
Revolving credit and bankers acceptances (a)......................................... 4,500 --
9 1/4% senior subordinated notes due February 15, 2004, $200,000 face amount (b)..... 200,000 --
11 1/8% subordinated debentures due May 1, 2001, $145,500 and 290,500 face amount,
net of original issue discount of $10,943 and $23,604 (b)(c)....................... 134,557 266,896
Bank term/revolving credit and working capital loans and Hancock senior notes,
including $9,100 of bankers acceptances, due January 31, 1994 and January 31, 1995
(a).................................................................................. -- 221,723
Senior secured floating rate and fixed rate notes due April 15, 1997 (a)............. -- 123,000
13% subordinated debentures, due May 1, 2006, $345,165 face amount (a)............... -- 345,165
11.75% senior notes, due April 15, 1995 (a).......................................... -- 45,000
Variable rate demand industrial development revenue refunding bonds, due $8,250 March
1, 2009 and $10,000 May 1, 2013 (d).................................................. 18,250 18,250
Other (principally notes secured by fixtures and equipment).......................... 25,895 28,188
----------- -------------
Total long-term debt....................................................... 954,891 1,048,222
Less amounts due within one year..................................................... 1,905 3,669
----------- -------------
Amounts due after one year................................................. $ 952,986 1,044,553
----------- -------------
----------- -------------
</TABLE>
The aggregate minimum annual maturities of long-term debt for the next five
fiscal years are: 1994, $1,905; 1995, $67,765; 1996, $85,870; 1997, $85,583 and
1998, $95,040. Although the Tranche A term loan commitment requires a repayment
of $28,348 during fiscal year 1994, the Company has excess availability under
the revolving credit commitment, and accordingly, has not treated the 1994
required repayment as current.
(a) On June 15, 1993, The Company entered into a new Credit Agreement,
which provides for i) a $650,000 term loan facility (Senior Term Loans)
consisting of a six-year amortizing Tranche A term loan facility of $500,000
(Tranche A Term Loans) and a seven-year amortizing Tranche B term loan facility
of $150,000 (Tranche B Term Loans); and ii) a $300,000 six-year revolving credit
facility ($30,000 of which is available as a swingline loan facility and
$155,000 as a letter of credit and bankers' acceptance facility) (Revolving
Loans).
F-11
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(4) LONG-TERM DEBT--(CONTINUED)
The Company used the proceeds of (i) Tranche A Term Loan borrowings of
$500,000, (ii) Tranche B Term Loan borrowings of $150,000, and (iii) Revolving
Loan borrowings of $70,000 to (a) repay in full all amounts outstanding under
the prior credit agreement dated as of July 13, 1990, as amended, with Morgan
Guaranty Trust Company of New York and other lenders, which consisted of a
revolving credit facility and a term loan facility; (b) to prepay in full the
Hancock Senior Notes and the 11.75% Senior Notes, (c) to deposit with a trustee
an amount sufficient to satisfy and discharge in full all indebtedness under the
Floating Rate Notes; (d) to redeem approximately $295,200 of the 13% Discount
Debentures (the remaining $50,000 was subsequently redeemed with the proceeds
from the issuance of the 9 1/4% Senior Subordinated Notes (note 4(b)); (e) to
redeem the 14 1/2% Preferred Stock in full; and (f) to pay fees and expenses in
connection with these transactions.
An extraordinary charge of $44,354 (net of tax benefit of $929) was
recognized during the year ended January 29, 1994 in connection with the early
repayment of debt and preferred stock from the proceeds of the new Credit
Agreement, IPO and the Note issuance (note 4(b)).
The Tranche A Term Loans and the Revolving Loans bear interest at various
rates approximating, at the Companys option (i) Prime plus 1 3/4% or (ii)
Adjusted LIBOR plus 2 3/4%. The spread above Prime and LIBOR may decrease by 1/2
of 1% in two separate instances if certain levels of funded debt and ratios of
funded debt to specified measures of earnings are achieved by the Company.
The Tranche B Term Loans bear interest at various rates approximating, at
the Company's option (i) Prime plus 2% or (ii) Adjusted LIBOR plus 3%.
Interest on Prime borrowings will be paid quarterly. Interest on LIBOR
borrowings will be payable at the end of the relevant interest period (one, two,
three or six month periods, except that with respect to six-month periods,
interest shall be payable every three months). The Company is required to pay a
commitment fee of 1/2 of 1% per annum on the undrawn amount of the term loan and
revolving facilities. The Company is also required to pay Letter of Credit fees
and Bankers' Acceptance fees.
During 1993, the Company entered into interest rate cap agreements relating
to the Credit Agreement. The cap agreements are for $200,000 and mature at
various dates over the next three years. The cap agreements have an approximate
6% interest rate.
Principal of the Tranche A Term Loans and the Tranche B Term Loans will be
amortized on the following schedule:
<TABLE><CAPTION>
TRANCHE A TRANCHE B
FISCAL YEAR TERM LOAN TERM LOAN
- ------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1994............................................................... $ 28,348 --
1995............................................................... 66,146 --
1996............................................................... 85,045 --
1997............................................................... 85,045 --
1998............................................................... 85,044 9,449
1999............................................................... 80,320 18,899
2000............................................................... -- 113,393
----------- -----------
----------- -----------
</TABLE>
Principal of the Tranche A Term Loans will be amortized in quarterly
payments and mature in full on July 31, 1999. Principal of the Tranche B Term
Loans will be amortized in semi-annual payments
F-12
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(4) LONG-TERM DEBT--(CONTINUED)
and mature in full on June 15, 2000. The Company has the right to prepay any
borrowings under the Credit Agreement in whole or in part at any time.
The Company is required to prepay borrowings under the Credit Agreement
with (i) 50% of the consolidated excess cash flow (as calculated in accordance
with the Credit Agreement) of the Company for the preceding fiscal year; (ii) in
any fiscal year, the excess of the aggregate net proceeds of dispositions of
assets of the Company and its subsidiaries over $6,000; (iii) in any fiscal
year, the net proceeds of any incurrence of debt (other than indebtedness
permitted under the Credit Agreement); and (iv) all of the net proceeds of any
equity issuance until such prepayment or prepayments equal $75,000
(approximately 8,000 remain at January 29, 1994), and thereafter, 75% of such
net proceeds. Prepayments are to be applied pro rata between outstanding Tranche
A Term loans and Tranche B Term Loans, applied pro rata among scheduled
payments, and, after such loans are paid in full, to the Swingline Loans and
then the Revolving Loans.
The borrowings under the Credit Agreement are secured by a pledge of all
capital stock of the Company's subsidiaries, as well as substantially all
personal property, including inventory and accounts receivable and certain real
property (as defined), contain certain restrictive covenants which provide
limitations on the Company with respect to incurring debt, the incurring of
liens, making investments, payment of dividends and purchase of shares of stock
of the Company, payment of lease expenses, consolidations and mergers, sale of
assets, and transactions with affiliates. The Credit Agreement also requires the
Company to satisfy certain financial ratios. At January 29, 1994, the Company
was in compliance with these covenants.
(b) On November 2, 1993, the Company issued $200,000 aggregate principal
amount of 9 1/4% Senior Subordinated Notes (Notes) due February 15, 2004. The
Notes are unsecured and subordinated to all existing and future senior debt (as
defined) of the Company and are redeemable at the option of the Company, in
whole or in part, at any time after February 15, 1999 at various redemption
prices (as defined) plus accrued interest to the date of redemption. Interest is
payable semi-annually on February 15 and August 15 of each year, commencing
February 15, 1994.
The Company used the net proceeds from the issuance of the Notes to redeem
the remaining $50,000 of the 13% Discount Subordinated Debentures and $145,000
of the 11 1/8% Subordinated Debentures (note 4(c)).
(c) The 11 1/8% subordinated debentures are subordinated to all existing
and future senior debt (as defined) of the Company, and are redeemable at the
option of the Company, in whole or in part, at anytime at 100% of their
principal amount plus accrued interest to the date of redemption. During 1993,
$145,000 face amount of these subordinated debentures were redeemed by the
Company (note 4(b)).
(d) The variable rate demand industrial development revenue refunding bonds
currently have an interest rate which is a daily rate established by First
National Bank of Chicago and is indicative of current bid-side yields of high
grade tax-exempt securities. At the Company's option, and under certain
conditions, the interest rate may be changed to a monthly rate or a fixed rate.
The bonds are secured by the related buildings, leases and letters of credit.
F-13
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(5) INCOME TAXES
For fiscal years 1993, 1992 and 1991, the income tax provision before
utilization of net operating losses and extraordinary item amounted to $2,556,
$2,864 and $2,927, which differs from amounts computed by applying the Federal
and State statutory rates of 38% in the year ended January 29, 1994 and 34% for
the years ended January 30, 1993 and February 1, 1992 to earnings (loss) before
income taxes and extraordinary items. The actual tax differs from the expected
tax (benefit) as follows:
<TABLE><CAPTION>
YEAR ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, FEBRUARY 2,
1994 1993 1992
----------- ------------- -------------
<S> <C> <C> <C>
Expected tax (benefit)................................................... $ 16,708 (687) 1,327
Amortization of goodwill................................................. 709 722 732
Other.................................................................... 2,346 2,829 868
----------- ------------- -------------
19,763 2,864 2,927
Effect of extraordinary item............................................. (17,207) -- --
----------- ------------- -------------
Tax provision before utilization of net operating loss carryforward...... $ 2,556 2,864 2,927
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
"Other" consists principally of alternative minimum tax which is caused by
differences in net operating loss utilization rates and depreciation. The amount
of alternative minimum tax paid is available in future years to offset regular
corporate income tax.
For the years ended January 30, 1993 and February 1, 1992, the Company
utilized approximately $762 and $1,680, respectively, of net operating loss
carryforwards for financial statement purposes.
The Company has Federal income tax loss carryforwards of approximately
$332,600 for income tax purposes which are available to offset future taxable
income, if any, through 2008.
The Company's Federal income tax returns have been examined through
year-end 1984 and any assessments have been paid or accrued. The Federal income
tax returns for 1985, 1986, 1987 and 1988 are currently being examined. The
Company believes that an adequate provision for income taxes has been made for
all open years.
F-14
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(5) INCOME TAXES--(CONTINUED)
Temporary differences and carryforwards which give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Reserves and other liabilities............................................... $ 16,950
Other........................................................................ 8,318
Loss carryforwards........................................................... 125,377
Credit carryforwards......................................................... 5,246
------------
Gross deferred tax assets................................................. 155,891
Less valuation allowance..................................................... (108,958)
------------
Net deferred tax assets................................................... $ 46,933
------------
------------
Deferred tax liabilities:
Inventory.................................................................... $ 22,091
Bad debts.................................................................... 846
Fixed assets................................................................. 23,996
------------
Gross deferred tax liabilities............................................ $ 46,933
------------
------------
</TABLE>
Upon adoption of Statement 109, effective January 31, 1993, the Company
determined a valuation allowance requirement in the amount of $108.9 million.
(6) REDEEMABLE PREFERRED STOCK
As discussed in note 4(a), seventy-five thousand shares of 14 1/2%
cumulative redeemable preferred stock with a stated value of $1,000 ($.01 par
value) were redeemed during 1993. Dividends of $4,924 were paid during 1993.
(7) STOCKHOLDERS' EQUITY
(a) Common Stock
The Company's authorized common stock consists of 100,000,000 shares of
Common Stock, par value $.01 per share (of which 3,518,728 shares are Nonvoting
Common Stock (Series I), par value $.01 per share).
(b) Preferred Stock
The Company's authorized preferred stock consists of 20,000,000 shares. The
preferred stock is issuable in series with terms as fixed by the Board of
Directors. No preferred stock has been issued.
(c) Stock Options
The Company reserves 1,666,667 shares of its Common Stock for the granting
of stock options and other incentive awards to officers, directors and key
employees under the 1993 Stock Option and Incentive Plan of Eckerd Corporation.
Options are granted at prices which are not less than the fair market value of a
share of common stock on the date of grant. Commencing three years after the
date of
F-15
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(7) STOCKHOLDERS' EQUITY--(CONTINUED)
grant, all options are exercisable to the extent of 50%, with an additional 25%
exercisable after each of the next two successive years. Unexercised options
expire ten years after the date of grant. Options granted under prior plans were
surrendered and granted under the terms of the 1993 plan. Shares under option
and option prices have been adjusted to reflect the Reclassification and the
Stock Split (note 1(b)).
As of January 29, 1994, January 30, 1993 and February 1, 1992, 222,668,
363,451 and 96,929 shares of Common Stock were available for grant. At January
29, 1994, options for 450,393 shares of Common Stock were exercisable at
$.56-$14.00 per share. At January 30, 1993, options for 490,777 shares of Common
Stock were exercisable at $.56-$30.00 per share. At February 1, 1992, options
for 488,357 shares of Common Stock were exercisable at $.56-$20.62 per share.
A summary of changes during the years ended January 29, 1994, January 30,
1993 and February 1, 1992 is set forth below:
<TABLE><CAPTION>
SHARES UNDER
OPTION OPTION PRICES
------------ ----------------
<S> <C> <C>
Outstanding February 2, 1991..................................................... 680,881 $ .56-$20.62
Granted........................................................................ 13,533 $ 36.00-$37.50
Exercised...................................................................... (7,200) $ 5.64-$15.75
Cancelled...................................................................... (14,747) $ 5.64-$36.00
------------
Outstanding February 1, 1992..................................................... 672,467 $ .56-$37.50
Granted........................................................................ 44,392 $ 27.00-$31.47
Exercised...................................................................... (24,100) $ 5.64-$26.75
Cancelled...................................................................... (5,799) $ 5.16-$36.00
------------
Outstanding January 30, 1993..................................................... 686,960 $ .56-$37.50
Granted........................................................................ 855,915 $ 10.00-$14.00
Exercised...................................................................... (74,395) $ 5.64-$ 9.23
Cancelled...................................................................... (61,476) $ 5.64-$36.00
------------
Outstanding January 29, 1994..................................................... 1,407,004 $ .56-$14.00
------------
------------
</TABLE>
Options previously granted at prices greater than $14.00 per share were
modified to $14.00 per share at the date of the IPO.
No accounting entries will be made until after the options have been
exercised at which time the par value of shares sold will be credited to common
stock and the excess of the proceeds of the sale over par value of shares sold
will be credited to capital in excess of par value.
(8) COMMITMENTS
The Company conducts the major portion of its retail operations from leased
store premises under leases that will expire within the next 25 years. Such
leases generally contain renewal options exercisable at the option of the
Company. In addition to minimum rental payments, certain leases provide for
payment of taxes, maintenance, and percentage rentals based upon sales in excess
of stipulated amounts.
F-16
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(8) COMMITMENTS--(CONTINUED)
The rental expense for the years ended January 29, 1994, January 30, 1993
and February 1, 1992 was:
<TABLE><CAPTION>
JANUARY 29, JANUARY 30, FEBRUARY 1,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals................................... $ 110,998 103,689 97,304
Percentage rentals................................ 18,369 16,938 15,824
----------- ----------- -----------
$ 129,367 120,627 113,128
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
At January 29, 1994, minimum rental commitments under noncancelable leases
were as follows:
<TABLE><CAPTION>
FISCAL YEAR
- --------------------------------------------------------------------------------
<S> <C>
1994............................................................................ $ 102,834
1995............................................................................ 98,440
1996............................................................................ 93,590
1997............................................................................ 86,977
1998............................................................................ 75,255
Thereafter...................................................................... 471,496
-----------
$ 928,592
-----------
-----------
</TABLE>
In 1987, the Company entered into an operating lease agreement for 72
stores with a third-party lessor established by an affiliate of Merrill Lynch &
Co. (which, through affiliated entities, controls a majority of the Company's
common stock). The lease agreement has certain restrictive covenants, which,
upon violation by the Company, gives the lessor the right to require the lessee
to purchase the leased stores at the remaining balance of the lease contract. At
January 29, 1994, the balance subject to the repurchase terms is $38,046. At
January 29, 1994, the Company was in compliance with these covenants.
During 1993, the Company sold certain photo processing equipment to an
unrelated third party for approximately $35,000, and entered into a five-year
lease with respect to such equipment. No gain or loss was recorded in connection
with this transaction. Annual lease payments of $6,892 are required over the
term of the lease.
During 1993, the Company and Integrated Systems Solutions Corporation
(ISSC) entered into a Systems Operations Service Agreement (Service Agreement)
pursuant to which ISSC will manage the Company's entire information systems
operation, including the implementation of a new point-of-sale system with
scanning capabilities. The Service Agreement has a ten year term and the total
payments to be made by the Company are expected to be between $320,000 and
$440,000 over such term, depending on the optional services utilized.
(9) TRANSACTIONS WITH RELATED PARTIES
In April 1989, the Company entered into a "Master Lease" agreement with a
third-party lessor established by an affiliate of Merrill Lynch & Co. (which,
through affiliated entities controls a majority of the Company's common stock)
whereby such lessor would finance the acquisition of store sites and
F-17
<PAGE>
ECKERD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(9) TRANSACTIONS WITH RELATED PARTIES--(CONTINUED)
the construction of buildings and acquisition of equipment. As of January 29,
1994, there were 12 stores leased under the agreement with an aggregate cost of
approximately $18,400. The Company pays the Merrill Lynch affiliate a structure
fee of 1% of the cost of land, buildings and equipment financed under the Master
Lease plus an administration fee. The Company paid the Merrill Lynch affiliate
fees aggregating $44, $45 and $408 for the years ended January 29, 1994, January
30, 1993 and February 1, 1992, respectively.
In July 1989, the Company entered into a Placement Agency Agreement with an
affiliate of Merrill Lynch & Co. whereby such affiliate would act as exclusive
placement agent for the private placement of up to a maximum of $200,000 at any
one time, of unsecured notes. The Company did not issue any of these unsecured
notes during the years ended January 29, 1994 and January 30, 1993. There were
no notes outstanding under this facility at January 29, 1994 and January 30,
1993.
During 1993, Merrill Lynch & Co., as one of the representatives of the
underwriters in the IPO, received underwriting commissions and related fees of
$1,847. In addition, as sole underwriter in the issuance of the Notes, Merrill
Lynch & Co. received approximately $4,000 in underwriting discounts from the
Company.
(10) SUBSEQUENT EVENT
Effective January 30, 1994, the Company entered into an agreement in
principal to sell certain assets of its Vision Group division. The Company does
not expect to recognize any significant gain or loss upon disposition.
F-18
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE OR TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
-----------
Prospectus Summary............................. 3
The Company.................................... 8
Risk Factors................................... 8
Price Range of Common Stock and Dividend
Policy......................................... 13
Capitalization................................. 14
Selected Historical Financial Data............. 15
The 1993 Transactions.......................... 17
Pro Forma Financial Data....................... 19
Management's Discussion and Analysis of Results
of Operations and Financial Condition........ 20
Business....................................... 30
Management..................................... 44
Principal and Selling Stockholders............. 47
Description of Certain Indebtedness............ 50
Description of Capital Stock................... 55
Certain United States Federal Tax
Considerations................................. 59
Underwriting................................... 61
Legal Matters.................................. 64
Experts........................................ 64
Available Information.......................... 64
Incorporation of Certain Information by
Reference...................................... 65
Index to Financial Statements.................. F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[ECKERD CORPORATION LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO.
INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Alt Cover
for Int'l Prospectus
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 20, 1994
PROSPECTUS
5,000,000 SHARES
[ECKERD CORPORATION LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock offered hereby will be sold by certain
stockholders (the "Selling Stockholders") of Eckerd Corporation (the "Company").
See "Principal and Selling Stockholders." The Company will not receive any of
the proceeds from the sale of the shares offered hereby.
Of the 5,000,000 shares offered hereby, 1,000,000 shares are being offered
outside the United States and Canada by the International Underwriters (the
"International Offering") and 4,000,000 shares are being offered in a
concurrent offering in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering" and together with the International Offering, the
"Offerings"). The price to public and the underwriting discount per share will
be identical for both Offerings. See "Underwriting."
The Common Stock is listed on the New York Stock Exchange under the symbol
"ECK." On April 19, 1994, the last reported sale price of the Common Stock on
the New York Stock Exchange was $20 1/8 per share. See "Price Range of Common
Stock and Dividend Policy."
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS."
------------------------
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 UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several International Underwriters and the several U.S. Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) The Company has agreed to pay certain expenses of the Offerings estimated at
$675,000.
(3) The Selling Stockholders have granted the International Underwriters and the
U.S. Underwriters 30-day options to purchase up to an aggregate of 150,000
and 600,000 additional shares of Common Stock, respectively, solely to cover
over-allotments, if any. If all such additional shares are purchased, the
total Price to Public, Underwriting Discount and Proceeds to Selling
Stockholders will be $ , $ , and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, and subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of certificates for the shares of Common Stock will be made in New
York, New York on or about , 1994.
------------------------
MERRILL LYNCH INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
MORGAN STANLEY & CO.
INTERNATIONAL
RAYMOND JAMES & ASSOCIATES, INC.
------------------------
The date of this Prospectus is , 1994.
<PAGE>
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 LAWS OF ANY SUCH STATE.
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the International
Purchase Agreement (the "International Purchase Agreement") among the
Company, the Selling Stockholders, and each of the underwriters named below
(the "International Underwriters"), the Selling Stockholders have agreed to
sell to each of the International Underwriters, and each of the
International Underwriters has severally agreed to purchase, the
aggregate number of shares of Common Stock set forth opposite its name
below.
<TABLE><CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- -----------
<S> <C>
Merrill Lynch International Limited..................................................................
Bear, Stearns International Limited..................................................................
Morgan Stanley & Co. International Limited...........................................................
Raymond James & Associates, Inc. ....................................................................
-----------
Total.................................................................................. 1,000,000
-----------
-----------
</TABLE>
Merrill Lynch International Limited ("Merrill Lynch International"), Bear,
Stearns International Limited, Morgan Stanley & Co. International Limited and
Raymond James & Associates, Inc. are acting as representatives (the
"International Representatives") of the several International Underwriters.
The Company and the Selling Stockholders have also entered into a U.S.
Purchase Agreement (the "U.S. Purchase Agreement") with certain underwriters
in the United States (the "U.S. Underwriters") for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Bear, Stearns & Co. Inc.,
Morgan Stanley & Co. Incorporated and Raymond James & Associates, Inc. are
acting as representatives (the "U.S. Representatives" and, together with the
International Representatives, the "Representatives"). Subject to the terms and
conditions set forth in the U.S. Purchase Agreement, and concurrently with the
sale of 1,000,000 shares to the International Underwriters, the Selling
Stockholders have agreed to sell to the U.S. Underwriters, and the U.S.
Underwriters severally have agreed to purchase, an aggregate of 4,000,000
shares. The public offering price per share and the underwriting discount per
share are identical under the International Purchase Agreement and the U.S.
Purchase Agreement.
In the International Purchase Agreement the several International
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the shares being sold pursuant to each such Agreement if any
of the shares being sold pursuant to such Agreement are purchased and in the
U.S. Purchase Agreement the several U.S. Underwriters have agreed, subject to
the terms and
61
<PAGE>
conditions set forth therein, to purchase all the shares being sold pursuant to
such agreement if any of the shares being sold pursuant to such agreement are
purchased. Under certain circumstances, the commitments of non-defaulting
International Underwriters and U.S. Underwriters (collectively, the
"Underwriters") may be increased. The closings with respect to the sale of the
shares to be purchased by the International Underwriters and U.S. Underwriters
are conditioned upon one another.
The International Underwriters propose initially to offer the shares to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers (who may include International Underwriters)
at such price less a concession not in excess of $ per share. The International
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share to certain other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.
The Selling Stockholders have granted to the International Underwriters
options to purchase up to an aggregate of 150,000 additional shares of Common
Stock and the U.S. Underwriters options to purchase up to an aggregate of
600,000 shares of Common Stock, in each case, exercisable for 30 days after the
date hereof, to cover over-allotments, if any, at the public offering price,
less the underwriting discount. To the extent that the International
Underwriters exercise these options, each of the International Underwriters will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage of such shares that the number of shares of Common Stock to
be purchased by it shown in the foregoing table bears to the total number of
shares of Common Stock initially offered to the International Underwriters
hereby.
The International Underwriters and the U.S. Underwriters have entered into
an Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate Agreement,
sales may be made between the International Underwriters and the U.S.
Underwriters of such number of shares of Common Stock as may be mutually agreed.
The price of any shares of Common Stock so sold shall be the public offering
price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are United States or
Canadian persons or to persons they believe intend to resell to persons who are
United States or Canadian persons, and the U.S. Underwriters and any dealer to
whom they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to non-United States or non-Canadian persons or to persons they
believe intend to resell to non-United States or non-Canadian persons, except,
in each case, for transactions pursuant to the Intersyndicate Agreement.
For information regarding the ownership by the Merrill Lynch Investors of
Common Stock and the representation of affiliates of ML & Co. on the Board of
Directors of the Company, see "Management" and "Principal and Selling
Stockholders."
Merrill Lynch and affiliates of Merrill Lynch have from time to time
performed, and continue to perform, various investment banking services for the
Company, for which customary compensation has been received, including, but not
limited to, investment banking services in connection with the Acquisition and
related transactions, acting as underwriter of the Company's 11 1/8% Debentures,
13% Discount Debentures and the Notes and acting as one of the representatives
of the underwriters in the IPO.
Each International Underwriter has agreed that (i) it has not offered or
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock offered hereby in the United Kingdom by means of any document except in
circumstances which do not constitute an offer to the public within the meaning
of the Companies Act 1985, (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 (the "Financial
Services Act") with respect to anything done by it in relation to the Common
Stock in, from, or otherwise involving the United Kingdom, and (iii) it has
62
<PAGE>
only issued or passed on and will only issue or pass on to any person in the
United Kingdom any document received by it in connection with the issuance of
Common Stock if that person is of a kind who falls within Article 9(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1988.
The Common Stock is listed on the New York Stock Exchange under the symbol
"ECK." Because the Company is an affiliate of Merrill Lynch, one of the
underwriters, the International Offering is being conducted in accordance with
the applicable provisions of Schedule E of the By-Laws of the National
Association of Securities Dealers, Inc. In accordance with Schedule E, no NASD
member participating in the distribution is permitted to confirm sales to
accounts over which it exercises discretionary authority without prior specific
written consent. In addition, under the rules of the New York Stock Exchange,
Merrill Lynch is precluded from issuing research reports that make
recommendations with respect to the Common Stock for so long as the Company is
an affiliate of Merrill Lynch.
Pursuant to the Registration Rights Agreement, each holder of at least 1%
of the outstanding shares of Common Stock who is a party thereto has agreed, for
a period beginning seven days before, and ending 120 days after, the effective
date of the Registration Statement of which this Prospectus is a part, not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of Common Stock or any securities convertible into or
exchangeable for Common Stock, or any rights or warrants to acquire Common
Stock. See "Risk Factors--Shares Eligible for Future Sale." Approximately 54.22%
of the shares of Common Stock outstanding upon consummation of the Offering
will be subject to such provision. In addition, each of the Company and the
executive officers and directors of the Company will agree, for a period of
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, not to sell or otherwise dispose of any shares of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock, or any rights or warrants to acquire Common Stock without the prior
written consent of the Representatives of the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
International Under writers and the U.S. Underwriters against certain civil
liabilities, including liabilities under the Securities Act.
Merrill Lynch from time to time performs investment banking and other
financial services for the Company and affiliates of Merrill Lynch are the
Merrill Lynch Investors. See "Principal and Selling Stockholders." In addition
to Merrill Lynch, certain of the Underwriters, from time to time, perform
investment banking and other financial services for the Company.
63
<PAGE>
[Alternate International]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND THE COMPANIES ACT 1985 WITH RESPECT TO ANYTHING DONE BY
ANY PERSON IN RELATION TO THE COMMON STOCK IN, FROM OR OTHERWISE INVOLVING THE
UNITED KINGDOM MUST BE COMPLIED WITH. SEE "UNDERWRITING".
IN THIS PROSPECTUS, REFERENCE TO "DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS UNLESS STATED OTHERWISE.
------------------------
TABLE OF CONTENTS
PAGE
-----------
Prospectus Summary............................. 3
The Company.................................... 8
Risk Factors................................... 8
Price Range of Common Stock and Dividend
Policy......................................... 13
Capitalization................................. 14
Selected Historical Financial Data............. 15
The 1993 Transactions.......................... 17
Pro Forma Financial Data....................... 19
Management's Discussion and Analysis of Results
of Operations and Financial Condition........ 20
Business....................................... 30
Management..................................... 44
Principal and Selling Stockholders............. 47
Description of Certain Indebtedness............ 50
Description of Capital Stock................... 55
Certain United States Federal Tax
Considerations................................. 59
Underwriting................................... 61
Legal Matters.................................. 64
Experts........................................ 64
Available Information.......................... 64
Incorporation of Certain Information by
Reference...................................... 65
Index to Financial Statements.................. F-1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[ECKERD CORPORATION LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
MORGAN STANLEY & CO.
INTERNATIONAL
RAYMOND JAMES & ASSOCIATES, INC.
, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX
OF
OMITTED GRAPHIC MATERIAL
A. Photographs on Inside Front Cover Page of Prospectus:
1. Pharmacist/customer consultation
2. Product counter inside Eckerd Drug store
3. Eckerd Express Photo center interior
4. Customer check-out area inside Eckerd Drug store
5. Eckerd Drug store exterior
6. Customer shopping in Eckerd Drug store
7. "Eckerd" logo
B. Graphic Material on Page 2 of Prospectus:
1. Map of number of Eckerd Drug stores by state as listed
under the caption "Business--Eckerd Drug Stores" in the
Prospectus
C. Photographs on Inside Back Cover Page of Prospectus:
1. Eckerd Drug store exterior circa 1952
2. Eckerd Drug store exterior
3. "Eckerd America's Family Drug Store" logo
4. "Eckerd '52-'92 40 Years of Caring for You!" logo
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
in connection with the distribution of the securities being registered, other
than the underwriting discounts and commissions. All of the amounts shown are
estimates except for the Securities and Exchange Commission and National
Association of Securities Dealers, Inc. filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee................................... $ 41,515
National Association of Securities Dealers, Inc. filing fee..................... 12,540
Blue sky fees and expenses (including counsel fees)............................. 20,000
Costs of printing and engraving................................................. 200,000
Legal fees and expenses......................................................... 350,000
Accounting fees and expenses.................................................... 30,000
Miscellaneous................................................................... 20,945
-----------
Total...................................................................... $ 675,000
-----------
-----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's Restated Certificate of Incorporation contains such a
provision.
Under Article VIII of the Registrant's Restated By-Laws as currently in
effect, as well as under Article SEVENTH of the Registrant's Restated
Certificate of Incorporation, each person who is or was a director or officer of
the Registrant, or who serves or served any other enterprise or organization at
the request of the Registrant, shall be indemnified by the Registrant to the
full extent permitted by the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who, by reason of the fact that such person
is or was a director or officer of such corporation, is made (or threatened to
be made) a party to an action other than one brought by or on behalf of the
corporation, against reasonable expenses (including attorneys' fees), judgments,
fines and settlement payments, if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
such corporation and, in criminal actions, in addition, had no reasonable cause
to believe his conduct was unlawful. In the case of actions on behalf of the
corporation, indemnification may extend only to reasonable expenses (including
attorneys' fees) and only if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no such indemnification is permitted in respect of
any claim as to which such person is adjudged liable to such corporation except
to the extent that a court otherwise provides. To the extent that such person
has been successful in defending any action (even one on behalf of the
corporation), he is entitled to indemnification for reasonable expenses
(including attorneys' fees).
The indemnification provided for by the Delaware General Corporation Law is
not exclusive of any other rights of indemnification, and a corporation may
maintain insurance against liabilities for which
II-1
<PAGE>
indemnification is not expressly provided by the Delaware General Corporation
Law. The Registrant has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Restated
Certificate of Incorporation. These agreements, among other things, indemnify
the Registrant's directors and officers for certain expenses (including
attorneys' fees), judgments, fines and settlement amounts incurred by such
person in any action or proceeding, including any action by or in the right of
the Registrant, on account of services as a director or officer of the
Registrant or as a director or officer of any subsidiary of the Registrant, or
as a director or officer of any other company or enterprise to which the person
provides services at the request of the Registrant.
The Registrant maintains a liability insurance policy providing coverage
for its directors and officers in an amount up to an aggregate limit of
$10,000,000 per policy year.
The designees of the Merrill Lynch Investors who serve on the Company's
board of directors also have certain rights to indemnification by ML & Co.
and the Merrill Lynch Investors for liabilities incurred in connection with
actions taken by them in their capacity as directors of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
1.1 --Form of U.S. Purchase Agreement among the Registrant, the Selling
Stockholders and the U.S. Underwriters.
1.2 --Form of International Purchase Agreement among the Registrant, the
Selling Stockholders and the International Underwriters.
+3.1(i) --Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1(i) to the Registration
Statement on Form S-3 of the Registrant (No. 33-50223)).
+3.2(ii) --Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.2(ii) to the Registration Statement on Form
S-3 of the Registrant (No. 33-50223)).
+4.1 --Form of certificate for the Registrant's Common Stock, par value
$.01 per share (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-2 of the Registrant (No.
33-64906)).
+4.2 --Indenture dated as of May 1, 1986 by and between the Registrant
and Mellon Bank, N.A. as trustee, relating to the 11 1/8%
Subordinated Debentures due 2001 (incorporated by reference to the
Registration Statement on Form S-1 of Eckerd Holdings Inc. (No.
33-4576)). (On February 6, 1991, Mellon Bank, N.A. was succeeded
by Security Pacific National Trust Company, as trustee.)
+4.3 --Indenture dated as of May 1, 1986 between the Registrant and
Chemical Bank (as successor by merger to Manufacturers Hanover
Trust Company), relating to the Registrant's Discount Subordinated
Debentures due 2006 (incorporated by reference to Exhibit 4.2 to
the Registration Statement on Form S-1 of the Registrant (No. 33-
10721)).
+4.4 --Indenture dated as of November 1, 1993 between the Registrant and
State Street Bank and Trust Company of Connecticut, National
Association, as Trustee (incorporated by reference to Exhibit 4.2
to the Current Report on Form 8-K of the Registrant dated October
26, 1993).
+5.1 --Opinion and consent of James M. Santo, Esq.
+23.1 --Consent of KPMG Peat Marwick dated March 31, 1994.
+23.2 --Consent of James M. Santo (included in Exhibit 5.1 hereto).
23.3 --Consent of KPMG Peat Marwick dated April 20, 1994.
+24.1 --Powers of Attorney (included in signature pages hereto).
- ---------------
+ Previously filed.
II-2
<PAGE>
(b) Financial Statement Schedules:
SCHEDULE V --Property, Plant and Equipment
SCHEDULE VI --Accumulated Depreciation and Amortization of Plant
and Equipment
SCHEDULE VIII --Reserves
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
2. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, 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 Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
3. The undersigned Registrant hereby undertakes that:
(a) For purposes 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 pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) 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 such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Largo, State of Florida on April 20,
1994.
ECKERD CORPORATION
By /s/ SAMUEL G. WRIGHT
____________________________________
Samuel G. Wright
Senior Vice President/Finance
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated:
<TABLE><CAPTION>
SIGNATURE TITLES DATE
- --------------------------------------------------- --------------------------------------- -------------------
<S> <C> <C>
/s/ STEWART TURLEY Chairman of the Board and Chief April 20, 1994
------------------------------------- Executive Officer
Stewart Turley
/s/ FRANCIS A. NEWMAN President, Chief Operating Officer and April 20, 1994
------------------------------------- Director
Francis A. Newman
/s/ JOHN W. BOYLE Vice Chairman of the Board, Chief April 20, 1994
------------------------------------ Financial Officer and Director (Chief
John W. Boyle Financial Officer)
/s/ SAMUEL G. WRIGHT Senior Vice President/Finance (Chief April 20, 1994
------------------------------------ Accounting Officer)
Samuel G. Wright
* Director April 20, 1994
------------------------------------
James T. Doluisio
* Director April 20, 1994
------------------------------------
Donald F. Dunn
* Director April 20, 1994
------------------------------------
Albert J. Fitzgibbons, III
* Director April 20, 1994
------------------------------------
Lewis W. Lehr
* Director April 20, 1994
------------------------------------
Rupinder S. Sidhu
* Director April 20, 1994
------------------------------------
Alexis P. Michas
* By /s/ James M. Santo
------------------
James M. Santo
Attorney-in-fact
</TABLE>
II-4
<PAGE>
SCHEDULE V
ECKERD CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS)
<TABLE><CAPTION>
OTHER
BALANCE AT CHANGES BALANCE AT
BEGINNING ADDITIONS RETIREMENTS INCREASE END
CLASSIFICATION OF PERIOD AT COST OR SALES (DECREASE) OF PERIOD
- -------------------------------------------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended January 29, 1994:
Land...................................... $ 19,269 $ 1 $ 10 $ -- $ 19,260
Buildings................................. 68,196 4,381 29 856(a) 73,404
Furniture and equipment................... 326,145 20,418 59,869 19(a) 273,867
280(b)
(13,126)(a)
Transportation equipment.................. 14,660 104 1,721 7(a) 13,050
Leasehold improvements.................... 123,344 8,187 3,464 (882)(a) 127,480
295(b)
----------- ----------- ----------- ---------- -----------
$ 551,614 $ 33,091 $ 65,093 $ (12,551) $ $507,061
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
Year Ended January 30, 1993:
Land...................................... $ 19,343 $ 11 $ 85 $ -- $ 19,269
Buildings................................. 66,181 1,337 8 686(a) 68,196
Furniture and equipment................... 299,169 36,519 11,410 1,867(b) 326,145
Transportation equipment.................. 19,117 33 4,532 42(b) 14,600
(686)(a)
Leasehold improvements.................... 113,995 13,489 4,117 663(b) 123,344
----------- ----------- ----------- ---------- -----------
$ 517,805 $ 51,389 $ 20,152 $ 2,572 $ 551,614
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
Year Ended February 1, 1992:
Land...................................... $ 19,677 $ 10 $ 344 $ -- $ 19,343
Buildings................................. 64,640 516 11 1,036(a) 66,181
Furniture and equipment................... 272,989 33,687 7,507 -- 299,169
Transportation equipment.................. 18,052 4,900 3,835 -- 19,117
Leasehold improvements.................... 107,361 10,297 2,627 (1,036)(a) 113,995
----------- ----------- ----------- ---------- -----------
$ 482,719 $ 49,410 $ 14,324 $ -- $ 517,805
----------- ----------- ----------- ---------- -----------
----------- ----------- ----------- ---------- -----------
</TABLE>
- ---------------
Notes:
(a) Transfers from construction in progress and reclassifications.
(b) Acquisition of certain drug store assets.
S-1
<PAGE>
SCHEDULE VI
ECKERD CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PLANT AND EQUIPMENT
YEARS ENDED JANUARY 29, 1994 JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS)
<TABLE><CAPTION>
ADDITIONS OTHER
BALANCE AT CHARGED CHANGES BALANCE
BEGINNING TO RETIREMENTS INCREASE AT END
CLASSIFICATION OF PERIOD EARNINGS OR SALES (DECREASE) OF PERIOD
- ----------------------------------------------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended January 29, 1994:
Buildings.................................... $ 23,155 $ 3,222 $ 5 $ 198(a) $ 26,570
Furniture and equipment...................... 143,547 32,586 23,902 (4)(a) 144,866
(7,361)(a)
Transportation equipment..................... 8,725 1,303 1,683 -- 8,345
Leasehold improvements....................... 48,061 12,338 1,561 (194)(a) 58,644
----------- --------- ----------- ----------- -----------
$ 223,488 $ 49,449 $ 27,151 $ (7,361) $ 238,425
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
Year Ended January 30, 1993:
Buildings.................................... $ 19,135 $ 4,058 $ 346 $ 308(a) $ 23,155
Furniture and equipment...................... 117,105 35,717 9,275 -- 143,547
Transportation equipment..................... 10,994 2,029 4,298 -- 8,725
Leasehold improvements....................... 39,349 11,950 2,930 (308)(a) 48,061
----------- --------- ----------- ----------- -----------
$ 186,583 $ 53,754 $ 16,849 $ -- $ 223,488
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
Year Ended February 1, 1992:
Buildings.................................... $ 15,767 $ 3,336 $ 6 $ 38(a) $ 19,135
Furniture and equipment...................... 91,576 32,321 6,803 11(a) 117,105
Transportation equipment..................... 11,852 2,773 3,631 -- 10,994
Leasehold improvements....................... 30,055 11,124 1,781 (49)(a) 39,349
----------- --------- ----------- ----------- -----------
$ 149,250 $ 49,554 $ 12,221 $ -- $ 186,583
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
</TABLE>
- ---------------
Notes: (a) Reclassifications.
Depreciation is expensed principally by the straight line method over the
estimated useful lives of such assets as follows: Buildings 16-45 years;
furniture and equipment 1-10 years; transportation equipment 1-8 years and
leasehold improvements 2-20 years.
S-2
<PAGE>
SCHEDULE VIII
ECKERD CORPORATION AND SUBSIDIARIES
RESERVES
YEARS ENDED JANUARY 29, 1994, JANUARY 30, 1993 AND FEBRUARY 1, 1992
(IN THOUSANDS)
<TABLE><CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING TO AT END
DESCRIPTION OF PERIOD EARNINGS DEDUCTIONS OF PERIOD
- ------------------------------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables (a):
Year ended January 29, 1994..................................... $ 5,000 $ 7,000 $ 7,000 $ 5,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended January 30, 1993..................................... $ 4,600 $ 4,475 $ 4,075 $ 5,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Year ended February 1, 1992..................................... $ 4,250 $ 4,155 $ 3,805 $ 4,600
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- ---------------
Notes:
(a) This reserve is deducted from receivables in the balance sheets.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- ----------- --------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
1.1 --Form of U.S. Purchase Agreement among the Registrant, the Selling Stockholders
and the U.S. Underwriters.
1.2 --Form of International Purchase Agreement among the Registrant, the Selling Stockholders
and the International Underwriters.
+3.1(i) --Restated Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Registrant (No. 33-50223)).
+3.2(ii) --Amended and Restated By-laws of the Registrant (incorporated by reference to Exhibit
3.2(ii) to the Registration Statement on Form S-3 of the Registrant (No. 33-50223)).
+4.1 --Form of certificate for the Registrant's Common Stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-2 of the
Registrant (No. 33-64906)).
+4.2 --Indenture dated as of May 1, 1986 by and between the Registrant and Mellon Bank, N.A. as
trustee, relating to the 11 1/8% Subordinated Debentures due 2001 (incorporated by
reference to the Registration Statement on Form S-1 of Eckerd Holdings Inc. (No. 33-4576)).
(On February 6, 1991, Mellon Bank, N.A. was succeeded by Security Pacific National Trust
Company, as trustee.)
+4.3 --Indenture dated as of May 1, 1986 between the Registrant and Chemical Bank (as successor by
merger to Manufacturers Hanover Trust Company), relating to the Registrant's Discount
Subordinated Debentures due 2006 (incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-1 of the Registrant (No. 33-10721)).
+4.4 --Indenture dated as of November 1, 1993 between the Registrant and State Street Bank and
Trust Company of Connecticut, National Association, as Trustee (incorporated by reference
to Exhibit 4.2 to the Current Report on Form 8-K of the Registrant dated October 26, 1993).
+5.1 --Opinion and consent of James M. Santo, Esq.
+23.1 --Consent of KPMG Peat Marwick dated March 31, 1994.
+23.2 --Consent of James M. Santo (included in Exhibit 5.1 hereto).
23.3 --Consent of KPMG Peat Marwick dated April 20, 1994.
+24.1 --Powers of Attorney (included in signature pages hereto).
</TABLE>
- ---------------
+ Previously filed.
EXHIBIT 1.1
-----------------------------------------------------------------
-----------------------------------------------------------------
Eckerd Corporation
(a Delaware corporation)
4,000,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
Dated: ____________, 1994
-----------------------------------------------------------------
-----------------------------------------------------------------
<PAGE>
ECKERD CORPORATION
(a Delaware corporation)
4,000,000 Shares of Common Stock
Par Value $ 0.01 Per Share
U.S. PURCHASE AGREEMENT
________, 1994
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Bear, Stearns & Co. Inc.
Morgan Stanley & Co. Incorporated
Raymond James & Associates, Inc.
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
The stockholders of Eckerd Corporation, a Delaware
corporation (the "Company"), named in Schedule B (the "Selling
Stockholders") propose to sell severally to the underwriters
named in Schedule A (the "U.S. Underwriters"), for whom you are
acting as representatives (the "Representatives"), an aggregate
of 4,000,000 outstanding shares of Common Stock of the Company,
par value $ 0.01 per share (shares of which class of stock of the
Company are hereinafter referred to as "Common Stock"). Such
shares of Common Stock, aggregating 4,000,000 shares, are to be
sold to each U.S. Underwriter, acting severally and not jointly,
in such amounts as are set forth in Schedule A opposite the name
of such U.S. Underwriter. The Selling Stockholders also grant to
the U.S. Underwriters, severally and not jointly, the option
described in Section 2 to purchase all or any part of 600,000
additional shares of Common Stock to cover over-allotments. The
aforesaid 4,000,000 shares of Common Stock (the "Initial U.S.
Shares"), together with all or any part of the 600,000 additional
shares of Common Stock subject to the option described in
Section 2 (the "U.S. Option Shares"), are collectively herein
called the "U.S. Shares". The U.S. Shares are more fully
described in the U.S. Prospectus referred to below.
It is understood that the Company and the Selling
Stockholders are concurrently entering into an agreement, dated
the date hereof (the "International Purchase Agreement"),
<PAGE>
2
providing for the sale by the Selling Stockholders of an
aggregate of 1,000,000 shares of Common Stock (the "Initial
International Shares") through arrangements with certain
underwriters outside the United States and Canada (the
"Managers"), for whom Merrill Lynch International Limited, Bear,
Stearns International Limited, Morgan Stanley & Co. International
Limited and Raymond James & Associates, Inc. are acting as
representatives (the "Lead Managers"). It is further understood
that the Selling Stockholders are concurrently granting the
Managers an option to purchase all or any part of 150,000
additional shares of Common Stock (the "International Option
Shares") from the Selling Stockholders to cover over-allotments.
The Initial International Shares and the International Option
Shares are hereinafter collectively referred to as the
"International Shares". The International Shares and the U.S.
Shares are hereinafter collectively referred to as the "Shares".
The Company and the Selling Stockholders understand
that the U.S. Underwriters will simultaneously enter into an
agreement with the Managers dated the date hereof (the
"Intersyndicate Agreement") providing for the coordination of
certain transactions among the U.S. Underwriters and the Managers
under the direction of Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
You have advised us that you and the other U.S.
Underwriters, acting severally and not jointly, desire to
purchase the U.S. Shares and that you have been authorized by the
other U.S. Underwriters to execute this Agreement and the U.S.
Price Determination Agreement referred to below on their behalf.
The price to the public per share and the purchase
price per share for the U.S. Shares shall be agreed upon by
Equitable Variable Life Insurance Company ("Variable"), The
Equitable Life Assurance Society of the United States (together
with Variable, "Equitable"), one or more of the Attorneys-in-Fact
(as defined in Section 1(b) below) acting on behalf of the other
Selling Stockholders, and the Representatives, acting on behalf
of the several U.S. Underwriters, and such agreement shall be set
forth in a separate written instrument substantially in the form
of Exhibit A hereto (the "U.S. Price Determination Agreement").
The U.S. Price Determination Agreement may take the form of an
exchange of any standard form of written telecommunication
between Equitable, one or more of the Attorneys-in-Fact on behalf
of the other Selling Stockholders and the Representatives and
shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the U.S. Shares will be
governed by this Agreement, as supplemented by the U.S. Price
Determination Agreement. From and after the date of the
execution and delivery of the U.S. Price Determination Agreement,
this Agreement shall be deemed to incorporate, and all references
herein to "this Agreement" shall be deemed to include, the U.S.
<PAGE>
3
Price Determination Agreement. The price to the public per share
and the purchase price per share for the International Shares to
be paid by the Managers shall be set forth in a separate written
instrument substantially in the form of Exhibit A to the
International Purchase Agreement (the "International Price
Determination Agreement"). The price to the public per share and
the purchase price per share for the International Shares to be
paid by the several Managers shall be identical to the price to
the public per share and the purchase price per share for the
U.S. Shares to be paid by the several U.S. Underwriters
hereunder. This Agreement (including the related U.S. Price
Determination Agreement) and the International Purchase Agreement
(including the related International Price Determination
Agreement) are collectively referred to herein as the "Purchase
Agreements".
The Company has prepared and filed with the Securities
and Exchange Commission (the "Commission") a registration
statement on Form S-3 (Registration No. 33-52939) covering the
registration of the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary
prospectus, or prospectuses, and either (A) has prepared and
proposes to file, prior to the effective date of such
registration statement, an amendment to such registration
statement, including final prospectuses or (B) if the Company has
elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), will prepare and file prospectuses, in accordance
with the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)")
of the 1933 Act Regulations, promptly after execution and
delivery of the U.S. Price Determination Agreement and the
International Price Determination Agreement. Two forms of
prospectus are to be used in connection with the offering and
sale of the Shares: one relating to the U.S. Shares (the "Form
of U.S. Prospectus") and one relating to the International Shares
(the "Form of International Prospectus"). The Form of
International Prospectus is identical to the Form of U.S.
Prospectus, except for the cover page and the back cover page,
and the information under the caption "Underwriting". The
information, if any, included in such prospectuses that was
omitted from the prospectuses included in such registration
statement at the time it becomes effective but that is deemed,
pursuant to paragraph (b) of Rule 430A, to be part of such
registration statement at the time it becomes effective is
referred to herein as the "Rule 430A Information". Each
prospectus used before the time such registration statement
becomes effective, and any prospectus that omits the Rule 430A
Information that is used after such effectiveness and prior to
the execution and delivery of the U.S. Price Determination
Agreement, or the International Price Determination Agreement, is
herein called a "preliminary prospectus". Such registration
statement, including the exhibits thereto and the documents
<PAGE>
4
incorporated by reference therein pursuant to Item 12 ("Item 12")
of Form S-3 under the 1933 Act, as amended, and Rule 412 of the
1933 Act Regulations ("Rule 412") at the time it becomes
effective and including, if applicable, the Rule 430A
Information, is herein called the "Registration Statement", and
the Form of U.S. Prospectus and Form of International Prospectus,
in each case, including the documents incorporated by reference
therein pursuant to Item 12 and Rule 412, included in the
Registration Statement at the time it becomes effective are
herein called the "U.S. Prospectus" and "International
Prospectus", respectively, and collectively, the "Prospectuses",
and individually, a "Prospectus", except that, if the final U.S.
prospectus or International prospectus first furnished to the
U.S. Underwriters or the Managers after the execution of the U.S.
Price Determination Agreement or the International Price
Determination Agreement, as the case may be, for use in
connection with the offering of the Shares differs from the
prospectuses included in the Registration Statement at the time
it becomes effective (whether or not such prospectuses are
required to be filed pursuant to Rule 424(b)), the terms "U.S.
Prospectus", "International Prospectus", and "Prospectuses" and
"Prospectus" shall refer to the final U.S. Prospectus or
International Prospectus first furnished to the U.S. Underwriters
or Managers, as the case may be, for such use.
The Company and the Selling Stockholders understand
that the U.S. Underwriters propose to make a public offering of
the U.S. Shares as soon as you deem advisable after the
Registration Statement becomes effective and the U.S. Price
Determination Agreement has been executed and delivered.
Section 1. Representations and Warranties. (a) The
Company represents and warrants to and agrees with each of the
U.S. Underwriters that:
(i) The Company meets the requirements for use of
Form S-3 under the 1933 Act and when the Registration
Statement shall become effective and at all times subsequent
thereto up to the Closing Time referred to below (and, if
any U.S. Option Shares are purchased, at the Date of
Delivery referred to below), (A) the Registration Statement
and any amendments and supplements thereto will comply in
all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations; (B) neither the Registration
Statement nor any amendment or supplement thereto will
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(C) neither of the Prospectuses nor any amendment or
supplement thereto will include an untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the
<PAGE>
5
circumstances under which they were made, not misleading,
except that this representation and warranty does not apply
to statements or omissions made in reliance upon and in
conformity with information furnished in writing to the
Company by or on behalf of any U.S. Underwriter through you
expressly for use in the Registration Statement or the
Prospectuses.
(ii) The documents incorporated by reference in the
Prospectuses pursuant to Item 12 and Rule 412, at the time
they were filed with the Commission, complied in all
material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the
rules and regulations of the Commission thereunder (the
"1934 Act Regulations") and, when read together and with,
and as modified or superseded by, the other information in
the Prospectuses, at the time the Registration Statement
becomes effective and at all times subsequent thereto up to
the Closing Time (and, if any U.S. Option Shares are
purchased, at the Date of Delivery), will not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary in
order to make the statements therein, in light of the
circumstances under which they were made not misleading.
(iii) KPMG Peat Marwick, who are reporting upon
the audited financial statements included or incorporated by
reference in the Registration Statement, are independent
public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iv) The Purchase Agreements have been duly authorized,
executed and delivered by the Company.
(v) The consolidated financial statements of the
Company and its Subsidiaries (as defined below) included or
incorporated by reference in the Registration Statement
present fairly the consolidated financial position of the
Company and its Subsidiaries as of the dates indicated and
the consolidated results of operations and the consolidated
cash flows of the Company and its Subsidiaries for the
periods specified, respectively. Such financial statements
have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis
throughout the periods involved. The financial statement
schedules included in the Registration Statement present
fairly the information required to be stated therein. The
selected financial data included or incorporated by
reference in the Prospectuses present fairly the information
shown therein and have been compiled on a basis consistent
with that of the audited consolidated financial statements
included or incorporated by reference in the Registration
<PAGE>
6
Statement. The pro forma financial statements and other pro
forma financial information included in the Prospectuses
present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements,
have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(vi) The Company has been duly organized and is
subsisting as a corporation and in good standing under the
laws of the State of Delaware with corporate power and
corporate authority under such laws to own, lease and
operate its properties and conduct its business as described
in the Prospectuses; and the Company is duly qualified to
transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or
leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except
to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its
Subsidiaries, considered as one enterprise ("Material
Adverse Effect") and except for jurisdictions that do not
recognize the legal concepts of good standing or
qualification.
(vii) The Company's only subsidiaries are listed in
Schedule C attached hereto (each such corporation is
referred to herein as a "Subsidiary" and, collectively, the
"Subsidiaries"). Each Subsidiary has been duly organized and
is subsisting as a corporation and in good standing under
the laws of the jurisdiction of its incorporation with
corporate power and corporate authority under such laws to
own, lease and operate its properties and conduct its
business, except to the extent that the failure to be in
good standing would not have a Material Adverse Effect and
except for jurisdictions that do not recognize the legal
concept of good standing; and each Subsidiary is duly
qualified to transact business as a foreign corporation and
is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business
of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in
good standing would not have a Material Adverse Effect and
except for jurisdictions that do not recognize the legal
concepts of good standing or qualification. Except as set
forth in Schedule C, all of the outstanding shares of
capital stock of each Subsidiary have been duly authorized
<PAGE>
7
and validly issued and are fully paid and non-assessable and
are owned by the Company, directly or through a Subsidiary,
free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind except for
the pledge of the capital stock of each Subsidiary under the
Credit Agreement (as defined in the Prospectuses) and the
related pledge agreement (referred to in the Credit
Agreement).
(viii) (a) the Company had at the date indicated a
duly authorized, issued and outstanding capitalization as
set forth in the Prospectuses under the heading
"Capitalization"; and (b) the Shares will conform to the
description thereof contained or incorporated by reference
in the Prospectuses and such description conforms to the
rights set forth in the instruments defining the same.
(ix) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable; and no holder
thereof is or will be subject to personal liability by
reason of being such a holder.
(x) All of the other outstanding shares of capital
stock of the Company have been duly authorized and validly
issued and will have been fully paid and non-assessable; no
holder thereof is or will be subject to personal liability
by reason of being such a holder; and none of the
outstanding shares of capital stock of the Company have been
issued in violation of the preemptive rights of any
stockholder of the Company.
(xi) Since the respective dates as of which information
is given in the Registration Statement and the Prospectuses,
except as otherwise stated therein or contemplated thereby,
there has not been (A) any material adverse change in the
condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the
Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, (B) any
transaction entered into by the Company or any Subsidiary,
other than in the ordinary course of business, that is
material to the Company and the Subsidiaries, considered as
one enterprise, or (C) any dividend or distribution of any
kind declared, paid or made by the Company on its capital
stock.
(xii) Neither the Company nor any Subsidiary is in
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which
it may be bound or to which any of its properties may be
<PAGE>
8
subject, except for such defaults that would not have a
Material Adverse Effect. The execution and delivery of the
Purchase Agreements by the Company and compliance by the
Company with the terms of the Purchase Agreements have been
duly authorized by all necessary corporate action on the
part of the Company and do not and will, at the Closing
Time, not result in any violation of the charter or by-laws
of the Company or any Subsidiary, as in effect at the
Closing Time, and will, at the Closing Time, not conflict
with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or
any Subsidiary (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect) under (A) any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which the Company or any
Subsidiary is a party or by which it may be bound or to
which any of its properties may be subject or (B) any
existing applicable law, rule, regulation, judgment, order
or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their respective
properties.
(xiii) No authorization, approval, consent or
license of any government, governmental instrumentality
or court, domestic or foreign (other than under the 1933 Act
and 1933 Act Regulations, the securities or Blue Sky laws of
the various states, the securities laws of foreign
jurisdictions and the rules and regulations of the
National Association of Securities Dealers, Inc. ("NASD")),
is required for the compliance by the Company with the terms
of the Purchase Agreements, except such as have been
obtained.
(xiv) Except as disclosed in the Prospectuses,
there is no action, suit or proceeding before or by any
government, governmental instrumentality or court, domestic
or foreign, now pending or, to the knowledge of the Company,
threatened against or affecting the Company or any
Subsidiary that is required to be disclosed in the
Prospectuses or that could reasonably be expected to result
in a Material Adverse Effect, or that could reasonably be
expected to materially and adversely affect the consummation
of the transactions contemplated in the Purchase Agreements;
the aggregate of all pending legal or governmental
proceedings that are not described in the Prospectuses to
which the Company or any Subsidiary is a party or which
affect any of their respective properties, including
ordinary routine litigation incidental to the business of
<PAGE>
9
the Company or any Subsidiary, would not reasonably be
expected to have a Material Adverse Effect.
(xv) There are no contracts or documents of a character
required to be described in the Registration Statement or
the Prospectuses or to be filed as exhibits to the
Registration Statement that are not described and filed as
required.
(xvi) Each of the Company and the Subsidiaries has
good and marketable title to all properties and assets
described in the Prospectuses as owned by it, free and clear
of all liens, charges or encumbrances, except such as
(A) are described in the Prospectuses or (B) could not have
a Material Adverse Effect; all of the leases and subleases
material to the business of the Company and the
Subsidiaries, considered as one enterprise, and under which
the Company or any Subsidiary holds properties described in
the Prospectuses, are in full force and effect, and neither
the Company nor any Subsidiary has any notice of any
material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any Subsidiary under
any of the leases or subleases mentioned above, or affecting
or questioning the rights of such corporation to the
continued possession of the leased or subleased premises
under any such lease or sublease, except for such claims
that could not reasonably be expected to have a Material
Adverse Effect.
(xvii) Each of the Company and the Subsidiaries
owns, possesses or has obtained all material governmental
licenses, permits, certificates, consents, orders, approvals
and other authorizations necessary to own or lease, as the
case may be, and to operate its properties and to carry on
its business as presently conducted, and neither the Company
nor any Subsidiary has received any notice of proceedings
relating to revocation or modification of any such licenses,
permits, certificates, consents, orders, approvals or
authorizations, except for such licenses, permits,
certificates, consents, orders, approvals or other
authorizations that would not have a Material Adverse
Effect.
(xviii) Each of the Company and the Subsidiaries owns
or possesses, or can acquire on reasonable terms, adequate
patents, patent licenses, trademarks, service marks and
trade names necessary to carry on its business as presently
conducted, and neither the Company nor any Subsidiary has
received any notice of infringement of or conflict with
asserted rights of others with respect to any patents,
patent licenses, trademarks, service marks or trade names
<PAGE>
10
that in the aggregate could reasonably be expected to have a
Material Adverse Effect.
(xix) To the best knowledge of the Company, no
labor problem exists with its employees or with employees of
the Subsidiaries or is imminent that could reasonably be
expected to have a Material Adverse Effect, and the Company,
without any independent investigation, is not aware of any
existing or imminent labor disturbance by the employees of
any of its or the Subsidiaries' principal suppliers,
contractors or customers that could reasonably be expected
to have a Material Adverse Effect.
(xx) The Company has not taken and will not take,
directly or indirectly, any action designed to, or that
might be reasonably expected to, cause or result in
stabilization or manipulation of the price of the Common
Stock.
(xxi) Except as disclosed in the Registration
Statement and except as would not individually or in the
aggregate reasonably be expected to have a Material Adverse
Effect (A) the Company and the Subsidiaries are each in
compliance with all applicable Environmental Laws, (B) the
Company and the Subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their
requirements, (C) to the Company's knowledge, there are no
pending or threatened Environmental Claims against the
Company or any of the Subsidiaries, and (D) under applicable
law, there are no circumstances with respect to any property
or operations of the Company or the Subsidiaries that are
reasonably likely to form the basis of an Environmental
Claim against the Company or the Subsidiaries.
For purposes of this Agreement, the following terms
shall have the following meanings: "Environmental Law"
means any United States (or other applicable jurisdiction's)
federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law
and any judicial or administrative interpretation thereof
including any judicial or administrative order, consent
decree or judgment, relating to the environment, health,
safety or any chemical, material or substance, exposure to
which is prohibited, limited or regulated by any
governmental authority. "Environmental Claims" means any
and all administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings
relating in any way to any Environmental Law.
<PAGE>
11
(xxii) All United States federal income tax returns
of the Company and the Subsidiaries required by law to be
filed have been filed and all taxes shown on such returns or
otherwise assessed which are due and payable have been paid,
except tax assessments against which appeals have been or
will be promptly taken and as to which adequate reserves
have been provided. All other tax returns of the Company and
the Subsidiaries required to be filed pursuant to applicable
foreign, state, local or other law have been filed, except
insofar as the failure to file such returns could not
reasonably be expected to have a Material Adverse Effect,
and all taxes shown on such returns that have been filed or
otherwise assessed which are due and payable have been paid,
except for such taxes, if any, as are being contested, in
good faith and as to which adequate reserves have been
provided in accordance with generally accepted accounting
principles. The charges, accruals and reserves on the books
of the Company and the Subsidiaries in respect of any income
and corporate franchise tax liability for any years not
finally determined or with respect to which the applicable
statute of limitations has not expired are believed to be
adequate to meet any assessments or re-assessments for
additional income or corporate franchise tax for any years
not finally determined, except to the extent of any
inadequacy that could not have a Material Adverse Effect.
(xxiii) Each of the Company and the Subsidiaries has
fulfilled its obligations, if any, under the minimum funding
standards of Section 302 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the
regulations and published interpretations thereunder with
respect to each "pension plan" (as defined in ERISA and such
regulations and published interpretations) in which
employees of the Company or such Subsidiary are eligible to
participate and each such plan is in compliance in all
material respects with the presently applicable provisions
of ERISA and such regulations and published interpretations
(except for such failure to so comply that would not have,
singularly or in the aggregate with all other such failures
to comply, a Material Adverse Effect), and has not incurred
any unpaid liability to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums in the
ordinary course) or to any such plan under Title IV of
ERISA.
(xxiv) The Shares have been approved for listing on
the New York Stock Exchange, Inc.
(b) Each of the Selling Stockholders severally
represents and warrants to, and agrees with, the U.S.
Underwriters as follows:
<PAGE>
12
(i) When the Registration Statement shall become
effective, and at all times subsequent thereto up to the
Closing Time (and, if any U.S. Option Shares are purchased,
at the Date of Delivery), (A) neither the Registration
Statement nor any amendment or supplement thereto will
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein not
misleading; and (B) neither of the Prospectuses nor any
amendment or supplement thereto will include an untrue
statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made,
not misleading; provided, however, that, as to each Selling
-------- -------
Stockholder, the representations and warranties contained in
this subsection (i) apply only to statements or omissions
made in reliance upon and in conformity with information
which is furnished in writing to the Company by or on behalf
of such Selling Stockholder expressly for use in the
Registration Statement or the Prospectuses (a copy of all
such statements shall have been previously delivered to
you).
(ii) Such Selling Stockholder has duly authorized,
executed and delivered on _________, 1994 the Irrevocable
Power of Attorney and Custody Agreement (the "Custody
Agreement") with James M. Santo, Esq. as custodian (the
"Custodian"), and Samuel G. Wright and James M. Santo, Esq.,
as attorneys-in-fact (the "Attorneys-in-Fact"), and,
assuming the due authorization, execution and delivery by
the parties thereto other than such Selling Stockholder,
such Custody Agreement constitutes the valid, legal and
binding agreement of such Selling Stockholder, enforceable
in accordance with its terms except to the extent that
enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless
of whether enforceability is considered in a proceeding in
equity or at law); such Selling Stockholder has, in
accordance with the Custody Agreement, duly authorized each
and all of the Attorneys-in-Fact to execute and deliver each
Purchase Agreement on behalf of such Selling Stockholder and
otherwise to the extent permitted under the Custody
Agreement to act on behalf of such Selling Stockholder in
connection with the Purchase Agreements, and, in accordance
with the Custody Agreement, the Attorneys-in-Fact and the
Custodian are each duly authorized by such Selling
Stockholder to deliver the Shares to be sold by such Selling
Stockholder pursuant to the Purchase Agreements and to
accept payment therefor. When executed and delivered by one
or more of the Attorneys-in-Fact on behalf of the Selling
<PAGE>
13
Stockholders in accordance with the Custody Agreement, each
of the Purchase Agreements will have been duly authorized,
executed and delivered on behalf of each such Selling
Stockholder; provided, however, the representations and
-------- -------
warranties of this Section 1(b)(ii) are not applicable to
Equitable.
(iii) No authorization, approval, consent or
license of any government, governmental instrumentality or
court, domestic or foreign (other than under the 1933 Act
and the securities or Blue Sky laws of the various states,
the securities laws of foreign jurisdictions and the rules
and regulations of the NASD), is required for the
consummation by such Selling Stockholder of the transactions
contemplated in each of the Purchase Agreements or (with
respect to each Selling Stockholder other than Equitable)
the Custody Agreement, including, without limitation, the
sale and delivery of the Shares, except such as have been
obtained.
(iv) The execution and delivery of each of the Purchase
Agreements and (with respect to each Selling Stockholder
other than Equitable) the Custody Agreement and the
consummation by such Selling Stockholder of the transactions
contemplated in each of the Purchase Agreements and (with
respect to each Selling Stockholder other than Equitable)
the Custody Agreement will not, at the Closing Time (a)
result in a breach by such Selling Stockholder of, or
constitute a default by such Selling Stockholder under, any
material agreement or instrument or any decree, judgment or
order to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or the properties of
such Selling Stockholder are subject or (b) violate (A) any
provision of the certificate of incorporation, by-law,
partnership agreement or comparable governing documents of
such Selling Stockholder or (B) any law, rule or regulation
applicable to such Selling Stockholder or to which its
properties are subject (other than for the securities or
Blue Sky laws of the various states and the rules and
regulations of the NASD and assuming compliance with the
federal securities laws and the securities laws of foreign
jurisdictions by the other parties hereto).
(v) Such Selling Stockholder has and will at the
Closing Time have (assuming the accuracy of the first clause
of paragraph 1(a)(ix) hereof) good and marketable title to
the Shares to be sold by such Selling Stockholder pursuant
to each of the Purchase Agreements, free and clear of any
pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind, other than pursuant to the Purchase
Agreements; such Selling Stockholder has full right, power
and authority to sell, transfer and deliver such Shares
<PAGE>
14
pursuant to the Purchase Agreements; and, upon delivery of
such Shares and payment of the purchase price therefor as
contemplated in the Purchase Agreements, each of the U.S.
Underwriters and the Managers, as the case may be, will
receive good and marketable title to the Shares purchased by
it from such Selling Stockholder, free and clear of any
pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
(vi) With respect to each Selling Stockholder other
than Equitable, certificates for all of the Shares to be
sold by such Selling Stockholder pursuant to the Purchase
Agreements, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or
assignment executed in blank, have been placed in custody
with the Custodian pursuant to the Custody Agreement for the
purpose of effecting delivery, in accordance with the
Custody Agreement, pursuant to the Purchase Agreements.
(vii) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed
to, or that might be reasonably expected to, cause or result
in stabilization or manipulation of the price of the Common
Stock; and such Selling Stockholder has not distributed and
will not distribute any prospectus or other offering
material in connection with the offering and sale of the
Shares other than any preliminary prospectus filed with the
Commission or the Prospectuses or other material permitted
by the 1933 Act or the 1933 Act Regulations.
(viii) Such Selling Stockholder is duly organized
and subsisting and in good standing under the laws of its
jurisdiction of incorporation or organization, as the case
may be, with all necessary power and authority to (A) (with
respect to each Selling Stockholder other than Equitable)
execute, deliver and perform the Custody Agreement, (B)
enter into and perform each of the Purchase Agreements and
(C) sell and deliver the Shares to the U.S. Underwriters and
the Managers, as the case may be, in accordance with each of
the Purchase Agreements.
(c) Any certificate signed by any officer of the
Company or any Subsidiary and delivered to you or to counsel
for the Underwriters shall be deemed a representation and
warranty by the Company to each U.S. Underwriter as to the
matters covered thereby; and any certificate signed by or on
behalf of the Selling Stockholders as such and delivered to
you or to counsel for the Underwriters shall be deemed a
representation and warranty by the Selling Stockholders to
each U.S. Underwriter as to the matters covered thereby.
<PAGE>
15
Section 2. Sale and Delivery to the U.S. Underwriters;
-------------------------------------------
Closing. (a) On the basis of the representations and warranties
-------
herein contained, and subject to the terms and conditions herein
set forth, each Selling Stockholder agrees, severally and not
jointly, to sell to each U.S. Underwriter the number of Initial
U.S. Shares set forth opposite the name of such Selling
Stockholder on Schedule B, and each U.S. Underwriter agrees,
severally and not jointly, to purchase from each Selling
Stockholder, at the purchase price per share for the Initial U.S.
Shares to be agreed upon by Equitable, one or more of the
Attorneys-in-Fact and by the Representatives in accordance with
Section 2(b) or 2(c), and set forth in the U.S. Price
Determination Agreement, the number of Initial U.S. Shares set
forth opposite the name of such U.S. Underwriter in Schedule A
(except as otherwise may be provided in the U.S. Price
Determination Agreement) plus any additional number of Initial
U.S. Shares which such U.S. Underwriter may become obligated to
purchase pursuant to the provisions of Section 11 hereof, subject
to such adjustments as you, in your discretion, shall make to
eliminate any sales or purchases of fractional shares. The
relation of the number of Initial U.S. Shares set forth opposite
the name of such U.S. Underwriter in Schedule A to the total
number of Initial U.S. Shares is hereinafter referred to as such
U.S. Underwriter's "underwriting obligation proportion". If the
Company elects to rely on Rule 430A, Schedules A and B may be
attached to the U.S. Price Determination Agreement.
(b) If the Company has elected not to rely upon
Rule 430A, the purchase price per share for the Initial U.S.
Shares to be paid by the several U.S. Underwriters shall be
agreed upon and set forth in the U.S. Price Determination
Agreement, dated the date hereof, and an amendment to the
Registration Statement containing such per share price
information will be filed before the Registration Statement
becomes effective.
(c) If the Company has elected to rely upon Rule 430A,
the purchase price per share for the Initial U.S. Shares to
be paid by the several U.S. Underwriters shall be agreed
upon and set forth in the U.S. Price Determination
Agreement. In the event that the U.S. Price Determination
Agreement has not been executed by the close of business on
the fourth business day following the date on which the
Registration Statement becomes effective, this Agreement
shall terminate forthwith, without liability of any party to
any other party except that Sections 7 and 8 shall remain in
effect.
(d) In addition, on the basis of the representations
and warranties herein contained, and subject to the terms
and conditions herein set forth, the Selling Stockholders
grant the option to the U.S. Underwriters, severally and not
<PAGE>
16
jointly, to purchase up to an aggregate of 600,000
additional U.S. Option Shares, as set forth opposite such
Selling Stockholder's name on Schedule B, at the same
purchase price per share as shall be applicable to the
Initial U.S. Shares. The option hereby granted will expire
30 days after the date upon which the Registration Statement
becomes effective or, if the Company has elected to rely
upon Rule 430A, the date of the U.S. Price Determination
Agreement, and may be exercised, in whole or in part (but
not more than once), only for the purpose of covering
over-allotments that may be made in connection with the
offering and distribution of the Initial U.S. Shares upon
notice by you to Equitable and any of the Attorneys-in-Fact
setting forth the aggregate number of U.S. Option Shares as
to which the several U.S. Underwriters are exercising the
option, and the time and date of payment and delivery
thereof. Such time and date of delivery (the "Date of
Delivery") shall be determined by you but shall not be later
than seven full business days after the exercise of such
option, nor in any event prior to the Closing Time. If the
option is exercised as to only a portion of the U.S. Option
Shares, each of the Selling Stockholders will sell their pro
rata portion of the U.S. Option Shares to the purchased by
the U.S. Underwriters. If the option is exercised as to all
or any portion of the U.S. Option Shares, the U.S. Option
Shares as to which the option is exercised shall be
purchased by the U.S. Underwriters, severally and not
jointly, in their respective underwriting obligation
proportions (except as otherwise provided in the U.S. Price
Determination Agreement), subject to such adjustments as
you, in your discretion, shall make to eliminate any sales
or purchases of fractional shares.
(e) Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Shares shall be made at
the offices of Shearman & Sterling, 599 Lexington Avenue,
New York, New York 10022, or at such other place as shall be
agreed upon by the Company, Equitable, any of the Attorneys-
in-Fact on behalf of the other Selling Stockholders and you,
at 10:00 A.M. either (i) on the fifth full business day
after the effective date of the Registration Statement, or
(ii) if the Company has elected to rely upon Rule 430A, the
fifth full business day after execution of the U.S. Price
Determination Agreement (unless, in either case, postponed
pursuant to Section 11 or 12), or at such other time not
more than ten full business days thereafter as you, the
Company, Equitable and any of the Attorneys-in-Fact on
behalf of the other Selling Stockholders shall determine
(such date and time of payment and delivery being herein
called the "Closing Time"). In addition, in the event that
any or all of the U.S. Option Shares are purchased by the
U.S. Underwriters, payment of the purchase price for, and
<PAGE>
17
delivery of certificates for, such U.S. Option Shares shall
be made at the offices of Shearman & Sterling set forth
above, or at such other place as the Company, Equitable, any
of the Attorneys-in-Fact on behalf of the other Selling
Stockholders and you shall determine, on the Date of
Delivery as specified in the notice from you to the Company.
Payment shall be made to Equitable or any of the Attorneys-
in-Fact, as the case may be, by certified or official bank
check or checks in New York Clearing House funds payable to
the order of Equitable or such Attorney-in-Fact in trust for
the other Selling Stockholders, as the case may be, against
delivery to you for the respective accounts of the several
U.S. Underwriters of certificates for the U.S. Shares to be
purchased by them.
(f) Certificates for the Initial U.S. Shares and U.S.
Option Shares to be purchased by the U.S. Underwriters shall
be in such denominations and registered in such names as you
may request in writing at least two full business days
before the Closing Time or the Date of Delivery, as the case
may be. The certificates for the Initial U.S. Shares and
U.S. Option Shares will be made available in New York City
for examination and packaging by you not later than
10:00 A.M. on the business day prior to the Closing Time or
the Date of Delivery, as the case may be.
(g) It is understood that each U.S. Underwriter has
authorized you, for its account, to accept delivery of,
receipt for, and make payment of the purchase price for, the
U.S. Shares that it has agreed to purchase. You,
individually and not as Representatives, may (but shall not
be obligated to) make payment of the purchase price for the
Initial U.S. Shares, or U.S. Option Shares, to be purchased
by any U.S. Underwriter whose check or checks shall not have
been received by the Closing Time or the Date of Delivery,
as the case may be.
Section 3. Certain Covenants of the Company. The
--------------------------------
Company covenants with each U.S. Underwriter as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the
Company elects to rely upon Rule 430A and subject to
Section 3(b) hereof, will comply with the requirements of
Rule 430A and will notify you immediately, and confirm the
notice in writing, if requested, (i) when the Registration
Statement, or any post-effective amendment to the
Registration Statement, shall have become effective, or any
supplement to the Prospectuses or any amended Prospectus
shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission
<PAGE>
18
to amend the Registration Statement or amend or supplement
the Prospectuses or for additional information and (iv) of
the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the
U.S. Shares for offering or sale in any jurisdiction, or of
the institution or threatening of any proceedings for any of
such purposes. The Company will use every reasonable effort
to prevent the issuance of any such stop order or of any
order preventing or suspending such use and, if any such
order is issued, to obtain the lifting thereof at the
earliest possible moment.
(b) The Company will not at any time file or make any
amendment to the Registration Statement, or any amendment or
supplement (i) if the Company has not elected to rely upon
Rule 430A, to the Prospectuses (including the documents
incorporated by reference into the Prospectuses) or (ii) if
the Company has elected to rely upon Rule 430A, to either
the prospectus included in the Registration Statement at the
time it becomes effective or to the Prospectuses (including
documents incorporated by reference into such prospectuses
or to the Prospectuses pursuant to Item 12 and Rule 412), of
which you shall not have previously been advised and
furnished a copy, or to which you or counsel for the
Underwriters shall reasonably object.
(c) The Company has furnished or will furnish to you
as many signed copies of the Registration Statement as
originally filed and of all amendments thereto, whether
filed before or after the Registration Statement becomes
effective, copies of all exhibits and documents filed
therewith (including documents incorporated by reference
into the Prospectuses pursuant to Item 12 and Rule 412) and
signed copies of all consents and certificates of experts,
as you may reasonably request and has furnished or will
furnish to you, for each other U.S. Underwriter, one
conformed copy of the Registration Statement as originally
filed and of each amendment thereto (including documents
incorporated by reference into the Prospectuses but without
exhibits).
(d) The Company will deliver to each U.S. Underwriter,
without charge, from time to time until the effective date
of the Registration Statement (or, if the Company has
elected to rely upon Rule 430A, until the date of the U.S.
Price Determination Agreement), as many copies of each
preliminary prospectus as such U.S. Underwriter may
reasonably request, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act.
The Company will deliver to each U.S. Underwriter, without
<PAGE>
19
charge, as soon as the Registration Statement shall have
become effective (or, if the Company has elected to rely
upon Rule 430A, as soon as practicable on or after the date
of the U.S. Price Determination Agreement) and thereafter
from time to time as requested during the period when the
Prospectuses are required to be delivered under the 1933
Act, such number of copies of the Prospectuses (as
supplemented or amended) as such U.S. Underwriter may
reasonably request.
(e) The Company will comply to the best of its ability
with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the
completion of the distribution of the U.S. Shares as
contemplated in this Agreement and in the U.S. Prospectus.
If at any time when a prospectus is required by the 1933 Act
to be delivered in connection with sales of the U.S. Shares
any event shall occur or condition exist as a result of
which it is necessary, in the opinion of counsel for the
Underwriters or counsel for the Company, to amend the
Registration Statement or amend or supplement the
Prospectuses in order that the Prospectuses will not include
an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, or if
it shall be necessary, in the opinion of either such
counsel, at any such time to amend the Registration
Statement or amend or supplement the Prospectuses in order
to comply with the requirements of the 1933 Act or the
1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b) hereof,
such amendment or supplement as may be necessary to correct
such untrue statement or omission or to make the
Registration Statement or the Prospectuses comply with such
requirements.
(f) The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the
Shares for offering and sale under the applicable securities
laws of such states and other jurisdictions as you may
designate and to maintain such qualifications in effect for
a period of not less than one year from the effective date
of the Registration Statement; provided, however, that the
-------- -------
Company shall not be obligated to file any general consent
to service of process or to qualify as a foreign corporation
or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is
not otherwise so subject. The Company will file such
statements and reports as may be required by the laws of
<PAGE>
20
each jurisdiction in which the U.S. Shares have been
qualified as above provided.
(g) The Company will make generally available to its
security holders as soon as practicable, but not later than
45 days after the close of the period covered thereby, an
earnings statement of the Company (in form complying with
the provisions of Rule 158 of the 1933 Act Regulations),
covering a period of 12 months beginning after the effective
date of the Registration Statement and covering a period of
12 months beginning after the effective date of any
post-effective amendment to the Registration Statement but
not later than the first day of the Company's fiscal quarter
next following such respective effective dates.
(h) The Company, during the period when the
Prospectuses are required to be delivered under the 1933
Act, will file promptly all documents required to be filed
with the Commission pursuant to Section 13 or 14 of the 1934
Act subsequent to the time the Registration Statement
becomes effective.
(i) For a period of five years after the Closing Time,
the Company will furnish to you and, upon request, to each
U.S. Underwriter, copies of all annual reports, quarterly
reports and current reports filed with the Commission on
Forms 10-K, 10-Q and 8-K, or such other similar forms as may
be designated by the Commission, and such other documents,
reports and information as shall be furnished by the Company
to its stockholders or security holders generally available.
(j) For a period of 90 days from the date hereof, the
Company will not, without the prior written consent of
Merrill Lynch & Co., Merrill Lynch, Pierce Fenner & Smith
Incorporated, on behalf of the U.S. Underwriters, directly
or indirectly, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of, any Common Stock or
securities convertible into Common Stock, other than to the
U.S. Underwriters pursuant to the Purchase Agreements and
other than pursuant to employee benefit plans and dividend
reinvestment plans that (i) are existing on the date hereof
and (ii) are described in the Prospectuses.
(k) If the Company has elected to rely upon Rule 430A,
it will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will
promptly file such prospectus.
(l) The Company has complied and will comply with all
the provisions of Florida H.B. 1771, codified as
<PAGE>
21
Section 517.075 of the Florida statutes, and all regulations
promulgated thereunder relating to issuers doing business in
Cuba.
Section 4. Payment of Expenses. The Company will pay
-------------------
and bear all costs and expenses incident to the performance of
the obligations of the Company and of the Selling Stockholders
under the Purchase Agreements, including (a) the preparation,
printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as
amended, the preliminary prospectuses and the Prospectuses and
any amendments or supplements thereto, and the cost of furnishing
copies thereof to the U.S. Underwriters, (b) the preparation,
printing and distribution of the Purchase Agreements (including
the U.S. Price Determination Agreement and International Price
Determination Agreement), the U.S. Shares and the Blue Sky
Survey, (c) the delivery of the U.S. Shares to the U.S.
Underwriters, (d) the fees and disbursements of counsel for the
Company and for the Selling Stockholders and accountants for the
Company and (e) the qualification of the Shares under the
applicable securities laws in accordance with Section 3(f) and
any filing for review of the offering with the NASD, including
filing fees and fees and disbursements of counsel for the U.S.
Underwriters in connection therewith and in connection with the
Blue Sky Survey; provided, however, that the Selling Stockholder
-------- -------
will be responsible for any stock transfer taxes payable upon the
sale of the U.S. Shares to the U.S. Underwriters.
If this Agreement is terminated by you in accordance
with the provisions of Section 5, 10(a)(i) or 12, the Company
shall reimburse the U.S. Underwriters for all their out-of-pocket
expenses, including the fees and disbursements of counsel for the
Underwriters.
Section 5. Conditions of U.S. Underwriters'
--------------------------------
Obligations. In addition to the execution and delivery of the
-----------
U.S. Price Determination Agreement, the obligations of the
several U.S. Underwriters to purchase and pay for the U.S. Shares
that they have respectively agreed to purchase hereunder
(including any U.S. Option Shares as to which the option granted
in Section 2 has been exercised and the Date of Delivery
determined by you is the same as the Closing Time) are subject to
the accuracy of the representations and warranties of the Company
and the Selling Stockholders contained herein (including those
contained in the U.S. Price Determination Agreement) or in
certificates of any officer of the Company or any Subsidiary or
certificates by or on behalf of the Selling Stockholders
delivered pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholders of their obligations
hereunder, and to the following further conditions:
<PAGE>
22
(a) The Registration Statement shall have become
effective not later than 5:30 P.M. on the date of the
Purchase Agreements or, with your consent, at a later time
and date not later, however, than 5:30 P.M. on the first
business day following the date hereof, or at such later
time or on such later date as you may agree to in writing
with the approval of a majority in interest of the several
U.S. Underwriters; and at the Closing Time no stop order
suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act and no proceedings
for that purpose shall have been instituted or shall be
pending or, to your knowledge or the knowledge of the
Company, shall be contemplated by the Commission, and any
request on the part of the Commission for additional
information shall have been complied with to the reasonable
satisfaction of counsel for the Underwriters. If the
Company has elected to rely upon Rule 430A, prospectuses
containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall
have been filed and declared effective in accordance with
the requirements of Rule 430A).
(b) At the Closing Time, you shall have received a
signed opinion of Skadden, Arps, Slate, Meagher & Flom,
special counsel for the Company, dated as of the Closing
Time, together with signed or reproduced copies of such
opinion for each of the other U.S. Underwriters, in form and
substance reasonably satisfactory to counsel for the
Underwriters, to the effect that:
(i) Each of the Company and Eckerd Holdings II,
Inc. has been duly organized and is subsisting as a
corporation and in good standing under the laws of the
State of Delaware with corporate power and corporate
authority under such laws to own, lease and operate its
properties and conduct its business as described in the
Prospectuses.
(ii) The Shares have been duly authorized and
validly issued and (upon the assumption, which such
counsel need not independently verify, that the Company
has received the full consideration for such Shares)
are fully paid and non-assessable; no holder thereof is
or will be subject to personal liability by reason of
being such a holder; and the Shares are not subject to
the preemptive rights of any stockholder of the
Company.
(iii) The Shares conform in all material
respects as to legal matters to the
<PAGE>
23
description thereof in the Prospectus under the caption
"Description of Capital Stock".
(iv) Each of the Purchase Agreements has been duly
authorized, executed and delivered by the Company.
(v) No authorization, approval, consent or
license of any government, governmental instrumentality
or court (other than under the 1933 Act and 1933 Act
Regulations, the securities or Blue Sky laws of the
various states, and the rules and regulations of the
NASD as to which such counsel need express no opinion),
is required under the general corporate laws of the
State of Delaware, the laws of the State of New York or
the laws of the United States, in each case, that in
such counsel's experience are normally applicable to
the transactions of the type provided for by the
Purchase Agreements, except such as have been obtained.
(vi) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in
the Prospectuses that are not described as required,
nor of any contracts or documents of a character
required to be described or referred to in the
Registration Statement or the Prospectuses or to be
filed as exhibits to the Registration Statement that
are not described, referred to or filed as required.
(vii) The statements made in the Prospectuses
under the caption "Description of Capital Stock", to
the extent that they constitute matters of law or legal
conclusions, have been reviewed by such counsel and
fairly summarize the information required to be
disclosed therein in all material respects.
(viii) The execution and delivery of the
Purchase Agreements, the sale and delivery of the
Shares and compliance by the Company with the terms of
the Purchase Agreements will not, as of the date of the
Closing Time, result in any violation of the charter or
by-laws of the Company or any Subsidiary as in effect
at the Closing Time, and will not, as of the date of
the Closing Time, conflict with or result in a breach
of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or
assets of the Company or any Subsidiary under (A) any
contract, indenture, mortgage, loan agreement, note,
lease or any other agreement or instrument filed or
incorporated by reference as an exhibit to the
Registration Statement (except for such conflicts,
<PAGE>
24
breaches or defaults or liens, charges or encumbrances
that would not have a Material Adverse Effect), (B) the
general corporate laws of the State of Delaware, the
laws of the State of New York or the laws of the United
States, in each case, that in such counsel's experience
are normally applicable to the transactions of the type
provided for by the Purchase Agreements (other than the
1933 Act and 1933 Act Regulations and the securities or
Blue Sky laws of the various states and the rules and
regulations of the NASD as to which such counsel need
express no opinion), or (C) any judgement, order or
decree listed on a schedule to such opinion (which the
Company has advised such counsel are the only
judgments, orders or decrees of any government,
governmental instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any
Subsidiary or any of their respective properties, by
which the Company or any Subsidiary is bound). Such
counsel need express no opinion, however, as to whether
or not the execution and delivery of the Purchase
Agreements, the sale and delivery of the Shares and
compliance by the Company with the terms of the
Purchase Agreements will constitute a violation of or a
default under any covenant, restriction or provision
with respect to financial ratios or tests or any aspect
of the financial condition or results of operations of
the Company.
(ix) Such counsel has been advised by the staff of
the Commission that the Registration Statement became
effective under the 1933 Act on the date specified in
such opinion; any required filing of the Prospectuses
or any supplement thereto pursuant to Rule 424(b) has
been made in the manner and within the time period
required by Rule 424(b); and, to the best knowledge of
such counsel, no stop order suspending the
effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been
instituted or are pending or are contemplated under the
1933 Act.
(x) The Registration Statement (including the
Rule 430A Information, if applicable) and the
Prospectuses, including the documents incorporated by
reference therein, and each amendment or supplement
thereto (except for the financial statements and other
financial or statistical data included or incorporated
by reference therein or omitted therefrom, as to which
such counsel need express no opinion), as of their
respective effective or issue dates, appear on their
face to have been appropriately responsive in all
material respects to the requirements of the 1933 Act
<PAGE>
25
and the 1933 Act Regulations, although such counsel
need not pass upon, and need not assume any
responsibility for, the accuracy, completeness or
fairness of the statements contained in the
Registration Statement or the Prospectuses, except as
otherwise specifically referred to in paragraph (vii)
above.
(xi) The documents incorporated by reference in
the Prospectuses (except for the financial statements,
financial statement schedules and other financial or
statistical data included therein or omitted therefrom,
as to which such counsel need express no opinion and
except to the extent that any statement therein is
modified or superseded in the Prospectuses or by a
subsequent document incorporated by reference therein),
as of the dates they were filed with the Commission,
appear on their face to have been appropriately
responsive in all material respects to the requirements
of the 1934 Act and the 1934 Act Regulations, although
such counsel need not pass upon, and need not assume
any responsibility for, the accuracy, completeness or
fairness of the statements contained in the
Registration Statement or the Prospectuses, except as
otherwise specifically referred to in paragraph (vii)
above.
(xii) To the best knowledge of such counsel,
each Selling Stockholder is the registered holder of
title to the Shares to be sold by such Selling
Stockholder pursuant to the Purchase Agreements, free
and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind, and
has full right, power and authority to sell, transfer
and deliver such Shares pursuant to the Purchase
Agreements. By delivery of a certificate or
certificates therefor such Selling Stockholder will
transfer to the U.S Underwriters and the Managers, as
the case may be, who have purchased such Shares
pursuant to the Purchase Agreements (without notice of
any defect in the title of such Selling Stockholder and
who are otherwise bona fide purchasers for purposes of
the Uniform Commercial Code) all of such Selling
Stockholder's interest in such Shares, free and clear
of any pledge, lien, security interest, charge, claim,
equity or encumbrance of any kind.
Such opinion shall be to such further effect that, in
connection with the preparation of the Registration Statement and
the Prospectuses, such counsel has participated in conferences
with officers and representatives of the Company, in-house
counsel for the Company, representatives of the independent
<PAGE>
26
accountants of the Company, the U.S. Underwriters and counsel for
the Underwriters at which the contents of the Registration
Statement and the Prospectuses and related matters were
discussed, and although such counsel is not passing upon, and
does not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectuses and has made no
independent check or verification thereof except as otherwise
specifically referred to in paragraph (vii), above, on the basis
of the foregoing, no facts have come to the attention of such
counsel that have led them to believe (A) that the Registration
Statement (including the Rule 430A Information, if applicable) or
any amendment thereto (except for the financial statements,
financial statement schedules and other financial or statistical
data included or incorporated by reference therein or omitted
therefrom, as to which such counsel need express no opinion), at
the time the Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or
(B) that the Prospectuses or any amendment or supplement thereto
(except for the financial statements, financial statement
schedules and other financial or statistical data included or
incorporated by reference therein or omitted therefrom, as to
which such counsel need express no opinion), as of its date and
at the Closing Time, contained or contains an untrue statement of
a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Such opinion shall be to such further effect with respect to
other legal matters relating to the Purchase Agreements and the
sale of the Shares pursuant to the Purchase Agreements as counsel
for the Underwriters may reasonably request. In giving such
opinion, such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the corporate law
of the State of Delaware, upon opinions of other counsel, who
shall be counsel reasonably satisfactory to counsel for the
Underwriters, in which case the opinion shall also be addressed
to the U.S. Underwriters and state that such other counsel
believes you and they are entitled to so rely. Such counsel may
also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Subsidiaries and
on certificates of public officials.
(c) At the Closing Time, you shall have received a
signed opinion of James M. Santo, Esq., Senior Vice
President/Administration for the Company, dated as of the
Closing Time, together with signed or reproduced copies of
such opinion for each of the other U.S. Underwriters, in
<PAGE>
27
form and substance reasonably satisfactory to counsel for
the Underwriters, to the effect that:
(i) The Company is duly qualified to transact
business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or
leases property of a nature, or transacts business of a
type, that would make such qualification necessary,
except to the extent that such failure to so qualify or
be in good standing would not have a Material Adverse
Effect and except for jurisdictions that do not
recognize the legal concepts of good standing or
qualification.
(ii) Each Subsidiary has been duly organized and
is subsisting as a corporation, and in good standing
under the laws of the jurisdiction of its incorporation
with corporate power and corporate authority under such
laws to own, lease and operate its properties and
conduct its business as described in the Prospectuses,
except to the extent that such failure to so qualify or
be in good standing would not have a Material Adverse
Effect and except for jurisdictions not recognizing the
legal concept of good standing.
(iii) Each Subsidiary is duly qualified to
transact business as a foreign corporation and is in
good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts
business of a type, that would make such qualification
necessary, except to the extent that such failure to so
qualify or be in good standing would not have a
Material Adverse Effect and except for jurisdictions
not recognizing the legal concepts of good standing or
qualification.
(iv) All of the outstanding shares of capital
stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable;
no holder thereof is or will be subject to personal
liability by reason of being such a holder; and none of
the outstanding shares of capital stock of the Company
was issued in violation of the preemptive rights of any
stockholder of the Company.
(v) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in
the Prospectuses that are not described as required,
nor of any contracts or documents of a character
required to be described or referred to in the
Registration Statement or the Prospectuses or to be
<PAGE>
28
filed as exhibits to the Registration Statement that
are not described, referred to or filed as required.
(vi) To the knowledge of such counsel the
descriptions in the Prospectuses of the statutes,
regulations, legal or governmental proceedings,
contracts and other documents therein described fairly
summarize the information required to be shown.
(vii) Such counsel does not know of any
default that exists in the performance or observance of
any material obligation, agreement, covenant or
condition contained in any contract, indenture, loan
agreement, note, lease or other agreement or instrument
that is described or referred to in the Registration
Statement or the Prospectuses or filed as an exhibit to
the Registration Statement, except for such defaults
that would not have a Material Adverse Effect.
(viii) The execution and delivery of the
Purchase Agreements, the sale and delivery of the
Shares and compliance by the Company with the terms of
the Purchase Agreements do not and will not result in
any violation of the charter or by-laws of the Company
or any Subsidiary, and do not and will not conflict
with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result
in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company
or any Subsidiary under (A) any indenture, mortgage or
loan agreement, or any other agreement or instrument
known to such counsel, to which the Company or any
Subsidiary is a party or by which it may be bound or to
which any of its properties may be subject (except for
such conflicts, breaches or defaults or liens, charges
or encumbrances that would not have a Material Adverse
Effect) and (B) any judgment, order or decree of any
government, governmental instrumentality or court,
domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of its properties,
except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a
Material Adverse Effect. Such counsel need express no
opinion, however, as to whether or not the execution
and delivery of the Purchase Agreements, the sale of
the Shares and compliance by the Company with the terms
of the Purchase Agreements will constitute a violation
of or a default under any covenant, restriction or
provision with respect to financial ratios or tests or
any aspect of the financial condition or results of
operations of the Company.
<PAGE>
29
(ix) The authorized, issued and outstanding
capital stock of the Company is as set forth in the
Prospectuses under the heading "Capitalization".
(x) Except as set forth in Schedule C attached
hereto, all of the outstanding shares of capital stock
of each Subsidiary have been duly authorized and
validly issued and are fully paid and non-assessable;
all of such shares are owned by the Company, directly
or through one or more Subsidiaries, free and clear of
any pledge, lien, security interest, charge, claim,
equity or encumbrance of any kind except for the Credit
Agreement and the Pledge Agreement; no holder thereof
is subject to personal liability by reason of being
such a holder and none of such shares was issued in
violation of the preemptive rights of any stockholder
of the Subsidiaries.
(xi) To the knowledge of such counsel, the
execution and delivery of the Purchase Agreements, the
sale of the Shares and compliance by the Company with
the terms of the Purchase Agreements do not and will
not result in any conflict with, constitute a default
under or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets
of the Company or any Subsidiary under any existing
applicable law, rule or regulation (other than under
the securities or Blue Sky laws of the various states,
the securities laws of foreign jurisdictions and the
rules and regulations of the NASD as to which such
counsel need express no opinion).
Such opinion shall be to such further effect that in
connection with the preparation of the Registration
Statement and the Prospectuses such counsel has participated
in conferences with officers and representatives of the
Company, special counsel for the Company, representatives of
the independent accountants of the Company, the Underwriters
and counsel for the Underwriters at which the contents of
the Registration Statement and the Prospectuses and related
matters were discussed, and although such counsel is not
passing upon, and does not assume any responsibility for,
the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectuses
and has made no independent check or verification thereof
except as otherwise specifically referred to in
paragraph (ix), on the basis of the foregoing, no facts have
come to the attention of such counsel that have led him to
believe (A) that the Registration Statement (including the
Rule 430A Information, if applicable) or any amendment
thereto (except for the financial statements, financial
<PAGE>
30
statement schedules and other financial or statistical data
included or incorporated by reference therein or omitted
therefrom, as to which such counsel need express no
opinion), at the time the Registration Statement or any such
amendment became effective, contained an untrue statement of
a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading or (B) that the Prospectuses or any
amendment or supplement thereto (except for the financial
statements, financial statement schedules and other
financial or statistical data included or incorporated by
reference therein or omitted therefrom, as to which such
counsel need express no opinion), as of its date and at the
Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
Such opinion shall be to such further effect with
respect to other legal matters relating to the Purchase
Agreements and the sale of the Shares pursuant to the
Purchase Agreements as counsel for the Underwriters may
reasonably request. In giving such opinion, such counsel
may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of Ohio, the
federal law of the United States and the corporate law of
the State of Delaware, upon opinions of other counsel, who
shall be counsel reasonably satisfactory to counsel for the
Underwriters, in which case the opinions shall also be
addressed to the U.S. Underwriters and state that such other
counsel believes you and they are entitled to so rely. Such
counsel may also state that, insofar as such opinion
involves factual matters, he has relied, to the extent he
deems proper, upon certificates of officers of the Company
and the Subsidiaries and certificates of public officials.
Such counsel may also state that such counsel is qualified
to practice law in the State of Ohio and does not purport to
be an expert on any law other than the laws of the State of
Ohio and the Federal laws of the United States and that,
insofar as such opinion relates to the general corporate law
of the State of Delaware, that such counsel has made such
investigation of such law as he has deemed necessary as a
basis for such opinion.
(d) At the Closing Time you shall have received a
signed opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for certain of the
Selling Stockholders, and from Solovay & Edlin, P.C., counsel for
certain of the Selling Stockholders, each dated as of the Closing
Time, together with signed or reproduced copies of such opinion
for each of the other U.S. Underwriters, in form and substance
<PAGE>
31
reasonably satisfactory to counsel for the Underwriters, each,
with respect to the Selling Stockholders that such counsel
represents, to the effect that:
(i) The execution, delivery and performance of the
Purchase Agreements has been duly and validly authorized by
the Selling Stockholders; each of the Purchase Agreements
has been duly executed and delivered by one of the
Attorneys-in-Fact on behalf of the Selling Stockholders; and
each such Selling Stockholder has duly executed and
delivered the Custody Agreement.
(ii) No authorization, approval, consent or license of
any government, governmental instrumentality or court is
required under the laws of the United States or the state of
New York (other than under the 1933 Act, under Blue Sky or
state securities law or the securities laws of foreign
jurisdictions) for the consummation by the Selling
Stockholders of the transactions contemplated by the
Purchase Agreements and the Custody Agreement.
(iii) The execution and delivery of the Custody
Agreement and of the Purchase Agreements by the Selling
Stockholders and the compliance by the Selling Stockholders
with the terms thereof does not conflict with or result in a
violation of (a) the certificate of incorporation, the by-
laws, the partnership agreement or similar governing
document of any of the Selling Stockholders or (b) any
existing applicable law, rule or regulation (other than
under the 1933 Act, under Blue Sky or state securities law
or the securities laws of foreign jurisdictions or the rules
and regulations of the NASD) or any judgment, order or
decree known to such counsel of any government, governmental
instrumentality or court, domestic or foreign, having
jurisdiction over the Selling Stockholders.
(iv) The Selling Stockholders, as the case may be, have
been organized and are subsisting in good standing as
corporations or partnerships under the laws of the
jurisdiction of their incorporation or organization with all
necessary power and authority under such laws to execute,
deliver and perform the Custody Agreement and the Purchase
Agreements.
(v) Each Attorney-in-Fact has been duly authorized by
each Selling Stockholder to deliver the Shares on behalf of
such Selling Stockholder in accordance with the terms of the
Purchase Agreements and the Custody Agreement;
provided, however that the opinions to be rendered pursuant to
-------- -------
this Section 5(d) with respect to the Custody Agreement need not
be rendered with respect to Equitable.
<PAGE>
32
Such opinion shall be to such further effect with respect to
other legal matters relating to the Purchase Agreements and the
sale of the Shares pursuant to the Purchase Agreements as counsel
for the Underwriters may reasonably request. In giving such
opinion, such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of New
York, the federal law of the United States and the corporate law
of the State of Delaware, upon opinions of other counsel, who
shall be counsel reasonably satisfactory to counsel for the
Underwriters, in which case the opinion shall also be addressed
to the U.S. Underwriters and state that such other counsel
believes you and they are entitled to so rely. Such counsel may
also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Subsidiaries,
certificates of officers or partners, as the case may be, of the
such Selling Stockholders and on certificates of public
officials.
(e) At the Closing Time, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the
Underwriters, dated as of the Closing Time, together with signed
or reproduced copies of such opinion for each of the other U.S.
Underwriters, to the effect that the opinions delivered pursuant
to Sections 5(b), 5(c) and 5(d) appear on their face to be
appropriately responsive to the requirements of the Purchase
Agreements except, specifying the same, to the extent waived by
you, and with respect to the incorporation and legal existence of
the Company, the Shares, the Purchase Agreements, the
Registration Statement, the Prospectuses, the documents
incorporated by reference and such other related matters as you
may require. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the
law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel satisfactory to you. Such counsel
may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Subsidiaries and
certificates of public officials; provided that such certificates
have been delivered to the U.S. Underwriters.
(f) At the Closing Time, (i) the Registration Statement and
the Prospectuses, as they may then be amended or supplemented,
shall conform to the requirements of the 1933 Act and the 1933
Act Regulations, the Company shall have complied in all material
respects with Rule 430A (if it shall have elected to rely
thereon) and neither the Registration Statement nor the
Prospectuses, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
<PAGE>
33
the statements therein (in the case of the Prospectuses, in light
of the circumstances under which they were made) not misleading,
(ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement, any
material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of
the Company and the Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business,
(iii) no action, suit or proceeding shall be pending or, to the
knowledge of the Company, threatened against the Company or any
Subsidiary that would be required to be set forth in the
Prospectuses other than as set forth therein and no proceedings
shall be pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary before or by any
government, governmental instrumentality or court, domestic or
foreign, that could reasonably be expected to result in a
Material Adverse Effect other than as set forth in the
Prospectuses, (iv) the Company shall have complied with all
agreements and satisfied all conditions set forth in this
Agreement on its part to be performed or satisfied at or prior to
the Closing Time and (v) the other representations and warranties
of the Company set forth in Section 1(a) shall be accurate as
though expressly made at and as of the Closing Time. At the
Closing Time, you shall have received a certificate of the
President or a Vice President, and the Treasurer or the Senior
Vice President/Finance, of the Company (each in their capacity as
an officer of the Company and not as an individual), dated as of
the Closing Time, to such effect.
(g) At the Closing Time, the representations and warranties
of each Selling Stockholder set forth in Section 1(b) shall be
accurate as though expressly made at and as of the Closing Time.
At the Closing Time, you shall have received a certificate of or
on behalf of each Selling Stockholder, dated as of the Closing
Time, to such effect with respect to such Selling Stockholder and
a certificate of or on behalf of each Selling Stockholder
certifying as to the accuracy and completeness of the attached
certificate of incorporation, by-laws, partnership agreement or
other comparable governing document and resolutions of the board
of directors regarding the sale and delivery of the Shares, the
authorization, execution and delivery of the Purchase Agreements
and the Custody Agreement.
(h) At the time that the Purchase Agreements are executed,
you shall have received from KPMG Peat Marwick a letter, dated
such date, in form and substance reasonably satisfactory to you,
together with signed or reproduced copies of such letter for each
of the other U.S. Underwriters, confirming that they are
independent public accountants with respect to the Company within
the meaning of the 1933 Act and the applicable published 1933 Act
Regulations, and stating in effect that:
<PAGE>
34
(i) in their opinion, the audited financial
statements included or incorporated by reference in the
Registration Statement and the Prospectuses comply as
to form in all material respects with the applicable
accounting requirements of the 1933 Act and the
published rules and regulations thereunder;
(ii) on the basis of procedures (but not an
examination in accordance with generally accepted
auditing standards) consisting of a reading of the
latest available unaudited interim consolidated
financial statements of the Company included or
incorporated by reference in the Registration Statement
and the Prospectuses, a reading of the minutes of all
meetings of the stockholders and directors of the
Company and the Subsidiaries and each Committee of the
Company's Board of Directors and of each Subsidiary's
Board of Directors since ___, inquiries of certain
officials of the Company and the Subsidiaries
responsible for financial and accounting matters, a
limited review in accordance with standards established
by the American Institute of Certified Public
Accountants with respect to the ___ and ___ periods
performed at the request of the Company, and such other
inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused
them to believe that:
(A) at _____ and at a specified date not
more than five days prior to the date of the
Purchase Agreements, there was any change in the
capital stock of the Company and the Subsidiaries
or any decrease in the consolidated net current
assets or stockholders' equity of the Company and
the Subsidiaries or any increase in the long-term
debt of the Company and the Subsidiaries, in each
case as compared with amounts shown in the latest
combined balance sheet included in the
Registration Statement, except in each case for
changes, decreases or increases that the
Registration Statement discloses have occurred or
may occur or;
(B) for the period from January 29, 1994 to
a specified date not more than five days prior to
the date of the Purchase Agreements, there was any
decrease in consolidated net sales, total or per
share amounts of income before extraordinary items
or of net income in each case as compared with the
comparable period in the preceding year, except in
each case for any decreases that the Registration
Statement discloses have occurred or may occur;
<PAGE>
35
(iii) based upon the procedures set forth in
clause (ii) above and a reading of the Selected
Financial Data included in the Registration Statement,
nothing has come to their attention that gives them
reason to believe that the Selected Financial Data
included in the Registration Statement do not comply as
to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933
Act Regulations, or that the information set forth
therein is not fairly stated in relation to the
financial statements from which it was derived;
(iv) they are unable to and do not express any
opinion on the Pro Forma Consolidated Statement of
Operations (the "Pro Forma Statement") included in the
Registration Statement or on the pro forma adjustments
applied to the historical amounts included in the Pro
Forma Statement; however, for purposes of such letter
they have:
(A) read the Pro Forma Statement;
(B) made inquiries of certain officials of
the Company who have responsibility for financial
and accounting matters about the basis for their
determination of the pro forma adjustments and
whether the Pro Forma Statement above complies in
form in all material respects with the applicable
accounting requirements of Rule 11-02 of
Regulation S-X; and
(C) proved the arithmetic accuracy of the
application of the pro forma adjustments to the
historical amounts in the Pro Forma Statement; and
on the basis of such procedures, and such other
inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused
them to believe that the Pro Forma Statement included
in the Registration Statement does not comply in form
in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X and that
the pro forma adjustments have not been properly
applied to the historical amounts in the compilation of
that statement; and
(v) in addition to the procedures referred to in
clause (ii) above, they have performed other specified
procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and
financial information appearing in the Registration
<PAGE>
36
Statement, which have previously been specified by you
and which shall be specified in such letter, and have
compared certain of such items with, and have found
such items to be in agreement with, the accounting and
financial records of the Company.
(i) At the Closing Time, you shall have received from KPMG
Peat Marwick a letter, in form and substance reasonably
satisfactory to you and dated as of the Closing Time, to the
effect that they reaffirm the statements made in the letter
furnished pursuant to Section 5(h), except that the specified
date referred to shall be a date not more than five days prior to
the Closing Time.
(j) At the Closing Time, counsel for the Underwriters shall
have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to
pass upon the sale of the Shares as contemplated in the Purchase
Agreements and the matters referred to in Section 5(g) and in
order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company and the
Selling Stockholders, the performance of any of the covenants of
the Company, or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company and the
Selling Stockholders at or prior to the Closing Time in
connection with the sale of the Shares as contemplated in the
Purchase Agreements shall be satisfactory in form and substance
to you and to counsel for the Underwriters.
(k) The "lock-up" letters which are substantially in the
form of Exhibit B attached hereto from (a) each executive officer
or director of the Company and (b) each stockholder of the
Company who (i) owns at least 1% of the outstanding shares of
Common Stock and (ii) who is a party to the Registration Rights
Agreement (as defined in the Prospectuses) have been delivered to
you on or before the date hereof.
If any of the conditions specified in this Section 5
shall not have been fulfilled when and as required by this
Agreement, this Agreement may be terminated by you on notice to
the Company, Equitable and any of the Attorneys-in-Fact on behalf
of the Selling Stockholders at any time at or prior to the
Closing Time, and such termination shall be without liability of
any party to any other party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of
Sections 7 and 8 herein shall remain in effect.
Section 6. Conditions to Purchase of U.S. Option
-------------------------------------
Shares. In the event that the U.S. Underwriters exercise their
------
option granted in Section 2 hereof to purchase all or any of the
U.S. Option Shares and the Date of Delivery determined by you
<PAGE>
37
pursuant to Section 2 hereof is later than the Closing Time, the
obligations of the several U.S. Underwriters to purchase and pay
for the U.S. Option Shares that they shall have respectively
agreed to purchase pursuant to this Agreement are subject to the
accuracy of the representations and warranties of the Company and
the Selling Stockholders herein contained, to the performance by
the Company and the Selling Stockholders of their obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective
at the Date of Delivery, and, at the Date of Delivery, no
stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act and no
proceedings for that purpose shall have been instituted or
shall be pending or, to your knowledge or the knowledge of
the Company, shall be contemplated by the Commission, and
any request on the part of the Commission for additional
information shall have been complied with to the
satisfaction of counsel for the Underwriters.
(b) At the Date of Delivery, the provisions of
Sections 5(f)(i) through 5(f)(v) shall have been complied
with at and as of the Date of Delivery and, at the Date of
Delivery, you shall have received a certificate of the
President or a Vice President, and the Treasurer or the
Senior Vice President/Finance, of the Company (each in their
capacity as an officer of the Company and not as an
individual), dated as of the Date of Delivery, to such
effect.
(c) At the Date of Delivery, you shall have received
the favorable opinions of Skadden, Arps, Slate, Meagher &
Flom, special counsel for the Company, James M. Santo, Esq.,
Senior Vice President/Administration for the Company,
Skadden, Arps, Slate, Meagher & Flom, counsel for certain of
the Selling Stockholders and Solovay & Edlin, P.C. counsel
for certain of the Selling Stockholders, together with
signed or reproduced copies of such opinions for each of the
other U.S. Underwriters, in each case in form and substance
reasonably satisfactory to counsel for the Underwriters,
dated as of the Date of Delivery, relating to the U.S.
Option Shares and otherwise to the same effect as the
opinions required by Section 5(b), 5(c) or 5(d),
respectively.
(d) At the Date of Delivery, you shall have received
the favorable opinion of Shearman & Sterling, counsel for
the Underwriters, dated as of the Date of Delivery, relating
to the U.S. Option Shares and otherwise to the same effect
as the opinion required by Section 5(f).
<PAGE>
38
(e) At the Date of Delivery, you shall have received a
letter from KPMG Peat Marwick, in form and substance
reasonably satisfactory to you and dated as of the Date of
Delivery, to the effect that they reaffirm the statements
made in the letter furnished pursuant to Section 5(i),
except that the specified date referred to shall be a date
not more than five days prior to the Date of Delivery.
(f) At the Date of Delivery, you shall have received
from each of the Selling Stockholders (or on their behalf)
certificates substantially in the form of the certificates
furnished to you pursuant to Section 5(h), except that such
certificates shall be as of the Date of Delivery.
(g) At the Date of Delivery, counsel for the
Underwriters shall have been furnished with all such
documents, certificates and opinions as they may reasonably
request for the purpose of enabling them to pass upon the
sale of the Option Shares as contemplated in the Purchase
Agreements and the matters referred to in Section 6(d) and
in order to evidence the accuracy and completeness of any of
the representations, warranties or statements of the Company
or the Selling Stockholders, the performance of any of the
covenants of the Company, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by
the Company and the Selling Stockholders at or prior to the
Date of Delivery in connection with the sale of the Option
Shares as contemplated in the Purchase Agreements shall be
satisfactory in form and substance to you and to counsel for
the Underwriters.
(h) At the Date of Delivery, the representations and
warranties of each Selling Stockholder set forth in
Section 1(b) hereof shall be accurate as though expressly
made at and as of the Date of Delivery.
Section 7. Indemnification. (a) The Company and each
---------------
Selling Stockholder that is Merrill Lynch Investor (as
defined in the Prospectuses, each an "ML
Seller" and collectively, the "ML
Sellers") jointly and severally agree to
indemnify and hold harmless each U.S.
Underwriter and each person, if any, who
controls any U.S. Underwriter within the
meaning of Section 15 of the 1933 Act to
the extent and in the manner set forth
in clauses (i), (ii) and (iii) below.
In addition, each Selling Stockholder
(other than the ML Sellers, whose
responsibilities shall be governed by
the foregoing sentence), severally and
not jointly (but only with respect to
<PAGE>
39
untrue statements or omissions, or
alleged untrue statements or omissions,
made in the Registration Statement (or
any amendment thereto) in reliance upon
and in conformity with written
information furnished by such Selling
Stockholder expressly for use in the
Registration Statement (or any amendment
thereto) or any preliminary prospectus
or the Prospectuses (or any amendment or
supplement thereto), a copy of which
written information shall have been
previously delivered to you, agrees to
indemnify and hold harmless each U.S.
Underwriter and each person, if any, who
controls any U.S. Underwriter within the
meaning of Section 15 of the 1933 Act as
follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of an
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, and all documents incorporated therein by
reference, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out
of an untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such
settlement is effected with the written consent of the
Company and the Selling Stockholders; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 7(c) hereof,
reasonable fees and disbursements of counsel chosen by you),
reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or
<PAGE>
40
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply
-------- -------
to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity
with written information furnished to the Company by any U.S.
Underwriter or Manager through you expressly for use in the
Registration Statement (or any amendment thereto), including the
Rule 430A Information, if applicable, or any preliminary
prospectus or the Prospectuses (or any amendment or supplement
thereto); provided further that the foregoing indemnification
-------- -------
with respect to any preliminary prospectus shall not inure to the
benefit of any U.S. Underwriter (or any person controlling such
U.S. Underwriter) from whom the person asserting any such losses,
claims, damages or liabilities purchased any of the U.S. Shares
if a copy of the Prospectuses (as then amended or supplemented if
the Company shall furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such U.S.
Underwriter to such person, if such is required by law, at or
prior to the written confirmation of the sale of such Shares to
such person and if the Prospectuses (as so amended or
supplemented) would have cured the defect giving rise to such
loss, claim, damage or liability; and provided further that the
-------- -------
liability of a Selling Stockholder (including any ML Seller)
pursuant to this Section 7 is limited to the amount of the net
proceeds of the offering of the U.S. Shares (after deducting the
underwriting discount, but before deducting expenses) received by
such Selling Stockholder.
Insofar as this indemnity agreement may permit
indemnification for liabilities under the 1933 Act of any person
who is a partner of a U.S. Underwriter or who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act and
who, at the date of this Agreement, is a director or officer of
the Company or controls the Company within the meaning of Section
15 of the 1933 Act, such indemnity agreement is subject to the
undertaking of the Company in the Registration Statement under
Item 17 thereof.
(b) Each U.S. Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act and each Selling
Stockholder and each person, if any, who controls any
Selling Stockholder within the meaning of Section 15 of the
1933 Act, against any and all loss, liability, claim, damage
and expense described in the indemnity agreement in
<PAGE>
41
Section 7(a), as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) in
reliance upon and in conformity with written information
furnished to the Company by such U.S. Underwriter through
you expressly for use in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, or such preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto).
(c) Each indemnified party shall give prompt notice to
each indemnifying party of any action commenced against it
in respect of which indemnity may be sought hereunder, but
failure to so notify an indemnifying party shall not relieve
it from any liability which it may have otherwise than on
account of this indemnity agreement. An indemnifying party
may participate at its own expense in the defense of such
action. In no event shall the indemnifying party or parties
be liable for the fees and expenses of more than one counsel
for all indemnified parties in connection with any one
action or separate but similar or related actions in the
same jurisdiction arising out of the same general
allegations or circumstances. If it so elects within a
reasonable time after receipt of such notice, an
indemnifying party, jointly with any other indemnifying
parties receiving such notice, may assume the defense of
such action with counsel chosen by it and approved by the
indemnified parties defendant in such action, unless such
indemnified parties reasonably object to such assumption on
the ground that there may be legal defenses available to
them which are different from or are in addition to those
available to such indemnifying party. If an indemnifying
party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of
counsel for the indemnified parties incurred thereafter in
connection with such action.
Section 8. Contribution. In order to provide for just
------------
and equitable contribution in circumstances under which the
indemnity provided for in Section 7 is for any reason held to be
unenforceable by the indemnified parties although applicable in
accordance with its terms, the Company, the Selling Stockholders
and the U.S. Underwriters shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity incurred by the Company, the
Selling Stockholders and one or more of the U.S. Underwriters, as
incurred, in such proportions that (a) the U.S. Underwriters are
responsible for that portion represented by the percentage that
the underwriting discount appearing on the cover page of the U.S.
<PAGE>
42
Prospectus bears to the offering price appearing thereon and
(b) the Company and the Selling Stockholders are severally
responsible for the balance on the same basis as each of them
would have been obligated to provide indemnification pursuant to
Section 7; provided, however, that no person guilty of fraudulent
-------- -------
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls an
U.S. Underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each
person, if any, who controls the Company or a Selling Stockholder
within the meaning of Section 15 of the 1933 Act shall have the
same rights to contribution as the Company or a Selling
Stockholder, as the case may be.
Section 9. Representations, Warranties and Agreements
------------------------------------------
to Survive Delivery. The representations, warranties,
-------------------
indemnities, agreements and other statements of the Selling
Stockholders and the Company or its officers set forth in or made
pursuant to the Purchase Agreements will remain operative and in
full force and effect regardless of any investigation made by or
on behalf of the Selling Stockholders, the Company, any U.S.
Underwriter or any person who controls a Selling Stockholder, the
Company or any U.S. Underwriter within the meaning of Section 15
of the 1933 Act and will survive delivery of and payment for the
U.S. Shares.
Section 10. Termination of Agreement. (a) You may
------------------------
terminate this Agreement, by notice to the Company, Equitable and
any of the Attorneys-in-Fact, at any time at or prior to the
Closing Time (i) if there has been, since the respective dates as
of which information is given in the Registration Statement, any
material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of
the Company and the Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the
financial markets in the United States or any outbreak of
hostilities or escalation thereof or other calamity or crisis the
effect of which on the financial markets of the United States is
such as to make it, in your reasonable judgment, impracticable to
market the U.S. Shares or enforce contracts for the sale of the
U.S. Shares or (iii) if trading in any securities of the Company
has been suspended by the Commission or the New York Stock
Exchange, or if trading generally on either the American Stock
Exchange or the New York Stock Exchange or in the
over-the-counter market has been suspended, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices
for securities have been required, by such exchanges or by order
<PAGE>
43
of the Commission or the New York Stock Exchange or any other
governmental authority or (iv) if a banking moratorium has been
declared by either federal, Florida or New York authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party
to any other party, except to the extent provided in Section 4.
Notwithstanding any such termination, the provisions of
Sections 7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2, with the effect stated in such Section.
(d) This Agreement may also terminate if the
International Purchase Agreement is terminated in accordance with
the terms thereof.
Section 11. Default by One or More of the U.S.
----------------------------------
Underwriters. If one or more of the U.S. Underwriters shall fail
------------
at the Closing Time to purchase the Initial U.S. Shares that it
or they are obligated to purchase pursuant to this Agreement (the
"Defaulted U.S. Shares"), you shall have the right, within 24
hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted U.S. Shares
in such amounts as may be agreed upon and upon the terms set
forth in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted U.S. Shares does not
exceed 10% of the total number of Initial U.S. Shares, the
non-defaulting U.S. Underwriters shall be obligated to
purchase the full amount thereof in the proportions that
their respective Initial Share underwriting obligation
proportions bear to the underwriting obligation proportion
of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted U.S. Shares exceeds 10%
of the total number of Initial U.S. Shares, this Agreement
shall terminate without liability on the part of any
non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve
any defaulting U.S. Underwriter from liability in respect of its
default.
In the event of any such default that does not result
in a termination of this Agreement, either you or the Company
shall have the right to postpone the Closing Time for a period
not exceeding seven days in order to effect any required changes
in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term "U.S.
<PAGE>
44
Underwriter" includes any person substituted for an U.S.
Underwriter under this Section 11.
Section 12. Default by a Selling Stockholder. If any
---------------------------------
Selling Stockholder shall fail at the Closing Time to sell and
deliver the number of Initial U.S. Shares that such Selling
Stockholder is obligated to sell, then the U.S. Underwriters may,
at your option, by notice from you to the Company, Equitable and
any of the Attorneys-in-Fact, either (a) terminate this Agreement
without any liability on the part of any non-defaulting party
except to the extent provided in Section 4 and except that the
provisions of Sections 7 and 8 shall remain in effect or
(b) elect to purchase the Initial U.S. Shares that the remaining
Selling Stockholders have agreed to sell pursuant to this
Agreement.
In the event of a default under this Section that does
not result in the termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Time for
a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectuses or in any
other documents or arrangements.
No action taken pursuant to this Section shall relieve
any Selling Stockholder so defaulting from liability, if any, in
respect of such default.
Section 13. Notices. All notices and other
-------
communications under the Purchase Agreements shall be in writing
and shall be deemed to have been duly given if delivered, mailed
or transmitted by any standard form of telecommunication.
Notices to you or the U.S. Underwriters shall be directed to you,
c/o Karen Harris, Vice President, Merrill Lynch, Pierce, Fenner &
Smith Incorporated at Merrill Lynch World Headquarters, North
Tower, World Financial Center, New York, New York 10281; notices
to the Company shall be directed to it at 8333 Bryan Dairy Road,
Largo, Florida, 34647, Attention: James M. Santo, Esq., Senior
Vice President/Administration with copies to Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York
10022, Attention: Stacy J. Kanter, Esq.; notices to the Selling
Stockholders (other than Equitable) shall be directed to any of
the Attorneys-in-Fact c/o Eckerd Corporation, 8333 Bryan Dairy
Road, Largo, Florida, 34647; notices to Equitable shall be
directed to them at 787 7th Avenue, Floor 37K, Attention:
Georgette Schaefer, Esq.; a copy of all notices to any Selling
Stockholder shall be provided to Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022, Attention:
Stacy J. Kanter, Esq. and Solovay & Edlin, P.C., 560 Lexington
Avenue, New York, New York 10022, Attention: Michael Solovay,
Esq.
<PAGE>
45
Section 14. Parties. This Agreement is made solely
-------
for the benefit of the several U.S. Underwriters, the Company and
the Selling Stockholders and, to the extent expressed, any person
who controls the Company, any Selling Stockholder or any of the
U.S. Underwriters within the meaning of Section 15 of the 1933
Act, and the directors of the Company, its officers who have
signed the Registration Statement, and their respective
executors, administrators, successors and assigns and, subject to
the provisions of Section 11, no other person shall acquire or
have any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as such
purchaser, from any of the several U.S. Underwriters of the U.S.
Shares. All of the obligations of the U.S. Underwriters
hereunder are several and not joint.
Section 15. Representation of U.S. Underwriters. You
-----------------------------------
will act for the several U.S. Underwriters in connection with the
transactions contemplated by this Agreement, and any action under
or in respect of this Agreement taken by you as Representatives
will be binding upon all U.S. Underwriters.
Section 16. Governing Law and Time. This Agreement
----------------------
shall be governed by the laws of the State of New York.
Specified times of the day refer to New York City time.
Section 17. Counterparts. This Agreement may be
------------
executed in one or more counterparts and when a counterpart has
been executed by each party, all such counterparts taken together
shall constitute one and the same agreement.
----------------------------------------
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us a
counterpart hereof, whereupon this instrument will become a
binding agreement among the Company, the Selling Stockholders and
the several U.S. Underwriters in accordance with its terms.
Very truly yours,
ECKERD CORPORATION
By
---------------------------------
Name:
Title:
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By
---------------------------------
Name:
Title:
<PAGE>
46
THE EQUITABLE LIFE ASSURANCE
COMPANY OF THE UNITED STATES
By
---------------------------------
Name:
Title:
THE OTHER SELLING STOCKHOLDERS
NAMED IN SCHEDULE B
By
---------------------------------
Attorney-in-Fact
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
BEAR, STEARNS & CO. INC.
MORGAN STANLEY & CO. INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
----------------------------
Name:
Title:
Investment Banking Group
For themselves and as Representatives of the
--------------------------------------------
other U.S. Underwriters named in Schedule A.
--------------------------------------------
<PAGE>
SCHEDULE A
Number of
U.S. Underwriters Initial U.S. Shares
----------------- -------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . .
Bear, Stearns & Co., Inc. . . . . . . .
Morgan Stanley & Co. Incorporated . . .
Raymond James & Associates, Inc. . . .
------------
Total . . . . . . . . . . 4,000,000
=========
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT A
Eckerd Corporation
(a Delaware corporation)
4,000,000 Shares of Common Stock
U.S. PRICE DETERMINATION AGREEMENT
, 1994
-------------------------
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Bear, Stearns & Co. Inc
Morgan Stanley & Co. Incorporated
Raymond James & Associates, Inc.
As Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Ladies and Gentlemen:
Reference is made to the U.S. Purchase Agreement dated
_____1994 (the "U.S. Purchase Agreement") among Eckerd
Corporation (the "Company"), the Selling Stockholders named in
Schedule B thereto or hereto (the "Selling Stockholders") and the
several U.S. Underwriters named in Schedule A thereto or hereto
(the "U.S. Underwriters"), for whom Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co.
Inc., Morgan Stanley & Co. Incorporated, Raymond James &
Associates, Inc. are acting as representatives (the
"Representatives"). The U.S. Purchase Agreement provides for the
purchase by the U.S. Underwriters from the Selling Stockholders,
subject to the terms and conditions set forth therein, of an
aggregate of 4,000,000 shares (the "U.S. Shares") of the
Company's common stock, par value $ 0.01 per share. This
Agreement is the U.S. Price Determination Agreement referred to
in the U.S. Purchase Agreement.
Pursuant to Section 2 of the U.S. Purchase Agreement,
the undersigned agree with the Representatives as follows:
1. The price to public per share for the U.S. Shares
shall be $___.
<PAGE>
2
2. The purchase price per share for the U.S. Shares to
be paid by the several U.S. Underwriters shall be
$ , representing an amount equal to the price set
----------------
forth above, less $______per share.
The Company represents and warrants to each of the U.S.
Underwriters that the representations and warranties of the
Company set forth in Section 1(a) of the U.S. Purchase Agreement
are accurate as though expressly made at and as of the date
hereof.
The Selling Stockholders represent and warrant to each
of the U.S. Underwriters that the representations and warranties
of the Selling Stockholders set forth in Section 1(b) of the U.S.
Purchase Agreement are accurate as though expressly made at and
as of the date hereof.
As contemplated by Section 2 of the Purchase Agreement,
attached as Schedule A is a completed list of the several U.S.
Underwriters and as Schedule B is a completed list of the Selling
Stockholders, which shall be a part of this Agreement and the
U.S. Purchase Agreement.
This Agreement shall be governed by the laws of the
State of New York.
------------------------------------------
<PAGE>
3
If the foregoing is in accordance with the
understanding of the Representatives of the agreement between the
U.S. Underwriters, the Company and the Selling Stockholders,
please sign and return to the Company a counterpart hereof,
whereupon this instrument along with all counterparts and
together with the U.S. Purchase Agreement shall be a binding
agreement between the U.S. Underwriters, the Company and the
Selling Stockholders in accordance with its terms and the terms
of the U.S. Purchase Agreement.
Very truly yours,
Eckerd Corporation
By
--------------------------------------
Name:
Title:
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By
--------------------------------------
Name:
Title:
THE EQUITABLE LIFE ASSURANCE
COMPANY OF THE UNITED STATES
By
--------------------------------------
Name:
Title:
THE OTHER SELLING STOCKHOLDERS
NAMED IN SCHEDULE B
By
--------------------------------------
Attorney-in-Fact
<PAGE>
4
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
BEAR, STEARNS & CO. INC
MORGAN STANLEY & CO. INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
---------------------------------------------------------------
Name:
Title:
Investment Banking Group
For themselves and as Representatives of the
--------------------------------------------
other U.S. Underwriters named in Schedule A
-------------------------------------------
<PAGE>
SCHEDULE A
Number of
U.S. Underwriter Initial U.S. Shares
---------------- -------------------
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Morgan Stanley & Co.
Incorporated
Raymond James & Associates,
Inc.
-------------
Total 4,000,000
=========
<PAGE>
SCHEDULE B
Number of Number of
Initial U.S. U.S. Option
Selling Stockholder Shares Shares
-------------------- ------ ------
Merrill Lynch Capital
Appreciation Partnership
No. II, L.P. 1,419,070 212,860
Merrill Lynch Capital
Appreciation Partnership
No. B-IX, L.P. 195,242 29,286
Merrill Lynch Interfunding,
Inc. 136,054 20,409
ML IBK Positions, Inc. 236,177 35,427
ML Offshore LBO Partnership
No. B-IX 114,363 17,155
ML Offshore LBO Partnership
No. II 36,078 5,411
ML Employees LBO Partnership
No. I, L.P. 35,277 5,291
Merrill Lynch KECALP L.P.
1989 35,296 5,294
Merrill Lynch KECALP L.P.
1986 25,998 3,900
Merchant Banking L.P. No. IV 12,265 1,840
MLCP Associates L.P. No. II 3,096 465
Equitable Variable Life
Insurance Company 43,628 6,545
The Equitable Life Assurance
Society of the United States 392,647 58,896
J.P. Morgan Capital
Corporation 432,820 64,922
Northwestern Mutual Life
Insurance Company 210,595 31,590
American Home Assurance
Company 320,102 48,015
CBC Capital Partners 212,802 31,921
Wells Fargo & Company 97,756 14,663
First Bank System 19,870 2,980
Monarch Life Insurance
Company 19,240 2,886
Sears Pension Trust 1,624 244
---------- ---------
Total........................... 4,000,000 600,000
========== =========
<PAGE>
SCHEDULE C
List of the Subsidiaries
------------------------
Clorwood Distributors, Inc., a Florida corporation.
Eckerd Consumer Products, Inc., a Florida corporation.
Eckerd Fleet, Inc., a Florida corporation.
Eckerd Holdings II, Inc., a Delaware corporation.
Eckerd's Westbank, Inc., a Louisiana corporation.
Eckerd Tobacco Company, Inc., a Florida corporation.
E.I.T., Inc., a Florida corporation.
Insta-Care Holdings, Inc., a Florida corporation.
Insta-Care Pharmacy Services Corporation, a Texas corporation.
P.C.V., Inc., a Florida corporation.
Pharmacy Dynamics Group, Inc., a Florida corporation.
E.T.B., Inc., a Texas corporation (49% owned)
-----------------------------------------------------------------
-----------------------------------------------------------------
Eckerd Corporation
(a Delaware corporation)
1,000,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: ____________, 1994
-----------------------------------------------------------------
-----------------------------------------------------------------
<PAGE>
ECKERD CORPORATION
(a Delaware corporation)
1,000,000 Shares of Common Stock
Par Value $ 0.01 Per Share
INTERNATIONAL PURCHASE AGREEMENT
______, 1994
Merrill Lynch International Limited
Bear, Stearns International Limited
Morgan Stanley & Co. International Limited
Raymond James & Associates, Inc.
As Co-Lead Managers
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
The stockholders of Eckerd Corporation, a Delaware
corporation (the "Company"), named in Schedule B (the "Selling
Stockholders") propose to sell severally to the managers named in
Schedule A (the "Managers"), for whom you are acting as co-lead
managers (the "Co-Lead Managers"), an aggregate of 1,000,000
outstanding shares of Common Stock of the Company, par value
$ 0.01 per share (shares of which class of stock of the Company
are hereinafter referred to as "Common Stock"). Such shares of
Common Stock, aggregating 1,000,000 shares, are to be sold to
each Manager, acting severally and not jointly, in such amounts
as are set forth in Schedule A opposite the name of such Manager.
The Selling Stockholders also grant to the Managers, severally
and not jointly, the option described in Section 2 to purchase
all or any part of 150,000 additional shares of Common Stock to
cover over-allotments. The aforesaid 1,000,000 shares of Common
Stock (the "Initial International Shares"), together with all or
any part of the 150,000 additional shares of Common Stock subject
to the option described in Section 2 (the "International Option
Shares"), are collectively herein called the "International
Shares". The International Shares are more fully described in
the International Prospectus referred to below.
It is understood that the Company and the Selling
Stockholders are concurrently entering into an agreement, dated
the date hereof (the "U.S. Purchase Agreement"), providing for
the sale by the Selling Stockholders of an aggregate of 4,000,000
shares of Common Stock (the "Initial U.S. Shares") through
arrangements with certain underwriters in the United States and
<PAGE>
2
Canada (the "U.S. Underwriters"), for whom Merrill Lynch & Co.,
Merrill Lynch, Pierce Fenner & Smith Incorporated, Bear, Stearns
& Co. Inc., Morgan Stanley & Co. Incorporated and Raymond James &
Associates, Inc. are acting as representatives (the "U.S.
Representatives"). It is further understood that the Selling
Stockholders are concurrently granting the U.S. Underwriters an
option to purchase all or any part of 600,000 additional shares
of Common Stock (the "U.S. Option Shares") from the Selling
Stockholders to cover over-allotments. The Initial U.S. Shares
and the U.S. Option Shares are hereinafter collectively referred
to as the "U.S. Shares". The International Shares and the U.S.
Shares are hereinafter collectively referred to as the "Shares".
The Company and the Selling Stockholders understand
that the Managers will simultaneously enter into an agreement
with the U.S. Underwriters dated the date hereof (the
"Intersyndicate Agreement") providing for the coordination of
certain transactions among the U.S. Underwriters and the Managers
under the direction of Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
You have advised us that you and the other Managers,
acting severally and not jointly, desire to purchase the
International Shares and that you have been authorized by the
other Managers to execute this Agreement and the Price
Determination Agreement referred to below on their behalf.
The price to the public per share and the purchase
price per share for the International Shares shall be agreed upon
by Equitable Variable Life Insurance Company ("Variable"), The
Equitable Life Assurance Society of the United States (together
with Variable, "Equitable") one or more of the Attorneys-in-Fact
(as defined in Section 1(b) below) acting on behalf of the other
Selling Stockholders, and the Co-Lead Managers, acting on behalf
of the several Managers, and such agreement shall be set forth in
a separate written instrument substantially in the form of
Exhibit A hereto (the "International Price Determination
Agreement"). The International Price Determination Agreement may
take the form of an exchange of any standard form of written
telecommunication between Equitable, one or more of the
Attorneys-in-Fact on behalf of the other Selling Stockholders and
the Co-Lead Managers and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of
the International Shares will be governed by this Agreement, as
supplemented by the International Price Determination Agreement.
From and after the date of the execution and delivery of the
International Price Determination Agreement, this Agreement shall
be deemed to incorporate, and all references herein to "this
Agreement" shall be deemed to include, the International Price
Determination Agreement. The price to the public per share and
the purchase price per share for the U.S. Shares to be paid by
the U.S. Underwriters shall be set forth in a separate written
<PAGE>
3
instrument substantially in the form of Exhibit A to the U.S.
Purchase Agreement (the "U.S. Price Determination Agreement").
The price to the public per share and the purchase price per
share for the U.S. Shares to be paid by the several U.S.
Underwriters shall be identical to the price to the public per
share and the purchase price per share for the International
Shares to be paid by the several Managers hereunder. This
Agreement (including the related International Price
Determination Agreement) and the U.S. Purchase Agreement
(including the related U.S. Price Determination Agreement) are
collectively referred to herein as the "Purchase Agreements".
The Company has prepared and filed with the Securities
and Exchange Commission (the "Commission") a registration
statement on Form S-3 (Registration No. 33-52939) covering the
registration of the Shares under the Securities Act of 1933, as
amended (the "1933 Act"), including the related preliminary
prospectus, or prospectuses, and either (A) has prepared and
proposes to file, prior to the effective date of such
registration statement, an amendment to such registration
statement, including final prospectuses or (B) if the Company has
elected to rely upon Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act
Regulations"), will prepare and file prospectuses, in accordance
with the provisions of Rule 430A and Rule 424(b) ("Rule 424(b)")
of the 1933 Act Regulations, promptly after execution and
delivery of the International Price Determination Agreement and
the U.S. Price Determination Agreement. Two forms of prospectus
are to be used in connection with the offering and sale of the
Shares: one relating to the U.S. Shares (the "Form of U.S.
Prospectus") and one relating to the International Shares (the
"Form of International Prospectus"). The Form of International
Prospectus is identical to the Form of U.S. Prospectus, except
for the cover page and the back cover page, and the information
under the caption "Underwriting". The information, if any,
included in such prospectuses that was omitted from the
prospectuses included in such registration statement at the time
it becomes effective but that is deemed, pursuant to
paragraph (b) of Rule 430A, to be part of such registration
statement at the time it becomes effective is referred to herein
as the "Rule 430A Information". Each prospectus used before the
time such registration statement becomes effective, and any
prospectus that omits the Rule 430A Information that is used
after such effectiveness and prior to the execution and delivery
of the U.S. Price Determination Agreement, or the International
Price Determination Agreement, is herein called a "preliminary
prospectus". Such registration statement, including the exhibits
thereto and the documents incorporated by reference therein
pursuant to Item 12 ("Item 12") of Form S-3 under the 1933 Act,
as amended, and Rule 412 of the 1933 Act Regulations ("Rule 412")
at the time it becomes effective and including, if applicable,
the Rule 430A Information, is herein called the "Registration
<PAGE>
4
Statement", and the Form of U.S. Prospectus and Form of
International Prospectus, in each case, including the documents
incorporated by reference therein pursuant to Item 12 and Rule
412, included in the Registration Statement at the time it
becomes effective are herein called the "U.S. Prospectus" and
"International Prospectus", respectively, and collectively, the
"Prospectuses", and individually, a "Prospectus", except that, if
the final U.S. prospectus or International prospectus first
furnished to the U.S. Underwriters or the Managers after the
execution of the U.S. Price Determination Agreement or the
International Price Determination Agreement, as the case may be,
for use in connection with the offering of the Shares differs
from the prospectuses included in the Registration Statement at
the time it becomes effective (whether or not such prospectuses
are required to be filed pursuant to Rule 424(b)), the terms
"U.S. Prospectus", "International Prospectus", and "Prospectuses"
and "Prospectus" shall refer to the final U.S. Prospectus or
International Prospectus first furnished to the U.S. Underwriters
or Managers, as the case may be, for such use.
The Company and the Selling Stockholders understand
that the Managers propose to make a public offering of the
International Shares as soon as you deem advisable after the
Registration Statement becomes effective and the International
Price Determination Agreement has been executed and delivered.
Section 1. Representations and Warranties. (a) The
------------------------------
Company represents and warrants to and agrees with each of the
Managers that:
(i) The Company meets the requirements for use of
Form S-3 under the 1933 Act and when the Registration
Statement shall become effective and at all times subsequent
thereto up to the Closing Time referred to below (and, if
any International Option Shares are purchased, at the Date
of Delivery referred to below), (A) the Registration
Statement and any amendments and supplements thereto will
comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations; (B) neither the
Registration Statement nor any amendment or supplement
thereto will contain an untrue statement of a material fact
or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and (C) neither of the Prospectuses nor any
amendment or supplement thereto will include an untrue
statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading, except that this representation and warranty
does not apply to statements or omissions made in reliance
upon and in conformity with information furnished in writing
to the Company by or on behalf of any Manager through you
<PAGE>
5
expressly for use in the Registration Statement or the
Prospectuses.
(ii) The documents incorporated by reference in the
Prospectuses pursuant to Item 12 and Rule 412, at the time
they were filed with the Commission, complied in all
material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the
rules and regulations of the Commission thereunder (the
"1934 Act Regulations") and, when read together and with,
and as modified or superseded by, the other information in
the Prospectuses, at the time the Registration Statement
becomes effective and at all times subsequent thereto up to
the Closing Time (and, if any International Option Shares
are purchased, at the Date of Delivery), will not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(iii) KPMG Peat Marwick, who are reporting upon
the audited financial statements included or incorporated by
reference in the Registration Statement, are independent
public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iv) The Purchase Agreements have been duly authorized,
executed and delivered by the Company.
(v) The consolidated financial statements of the
Company and its Subsidiaries (as defined below) included or
incorporated by reference in the Registration Statement
present fairly the consolidated financial position of the
Company and its Subsidiaries as of the dates indicated and
the consolidated results of operations and the consolidated
cash flows of the Company and its Subsidiaries for the
periods specified, respectively. Such financial statements
have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis
throughout the periods involved. The financial statement
schedules included in the Registration Statement present
fairly the information required to be stated therein. The
selected financial data included or incorporated by
reference in the Prospectuses present fairly the information
shown therein and have been compiled on a basis consistent
with that of the audited consolidated financial statements
included or incorporated by reference in the Registration
Statement. The pro forma financial statements and other pro
forma financial information included in the Prospectuses
present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements,
<PAGE>
6
have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to
the transactions or circumstances referred to therein.
(vi) The Company has been duly organized and is
subsisting as a corporation and in good standing under the
laws of the State of Delaware with corporate power and
corporate authority under such laws to own, lease and
operate its properties and conduct its business as described
in the Prospectuses; and the Company is duly qualified to
transact business as a foreign corporation and is in good
standing in each other jurisdiction in which it owns or
leases property of a nature, or transacts business of a
type, that would make such qualification necessary, except
to the extent that the failure to so qualify or be in good
standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and its
Subsidiaries, considered as one enterprise ("Material
Adverse Effect") and except for jurisdictions that do not
recognize the legal concepts of good standing or
qualification.
(vii) The Company's only subsidiaries are listed in
Schedule C attached hereto (each such corporation is
referred to herein as a "Subsidiary" and, collectively, the
"Subsidiaries"). Each Subsidiary has been duly organized,
and is subsisting as a corporation and in good standing
under the laws of the jurisdiction of its incorporation with
corporate power and corporate authority under such laws to
own, lease and operate its properties and conduct its
business, except to the extent that the failure to be in
good standing would not have a Material Adverse Effect and
except for jurisdictions that do not recognize the legal
concept of good standing; and each Subsidiary is duly
qualified to transact business as a foreign corporation and
is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business
of a type, that would make such qualification necessary,
except to the extent that the failure to so qualify or be in
good standing would not have a Material Adverse Effect and
except for jurisdictions that do not recognize the legal
concepts of good standing or qualification. Except as set
forth in Schedule C, all of the outstanding shares of
capital stock of each Subsidiary have been duly authorized
and validly issued and are fully paid and non-assessable and
are owned by the Company, directly or through a Subsidiary,
free and clear of any pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind except for
the pledge of the capital stock of each Subsidiary under the
<PAGE>
7
Credit Agreement (as defined in the Prospectuses) and the
related pledge agreement (referred to in the Credit
Agreement).
(viii) (a) the Company had at the date indicated a
duly authorized, issued and outstanding capitalization as
set forth in the Prospectuses under the heading
"Capitalization"; and (b) the Shares will conform to the
description thereof contained or incorporated by reference
in the Prospectuses and such description conforms to the
rights set forth in the instruments defining the same.
(ix) The Shares have been duly authorized and validly
issued and are fully paid and non-assessable; and no holder
thereof is or will be subject to personal liability by
reason of being such a holder.
(x) All of the other outstanding shares of capital
stock of the Company have been duly authorized and validly
issued and will have been fully paid and non-assessable; no
holder thereof is or will be subject to personal liability
by reason of being such a holder; and none of the
outstanding shares of capital stock of the Company have been
issued in violation of the preemptive rights of any
stockholder of the Company.
(xi) Since the respective dates as of which information
is given in the Registration Statement and the Prospectuses,
except as otherwise stated therein or contemplated thereby,
there has not been (A) any material adverse change in the
condition (financial or otherwise), earnings, business
affairs or business prospects of the Company and the
Subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, (B) any
transaction entered into by the Company or any Subsidiary,
other than in the ordinary course of business, that is
material to the Company and the Subsidiaries, considered as
one enterprise, or (C) any dividend or distribution of any
kind declared, paid or made by the Company on its capital
stock.
(xii) Neither the Company nor any Subsidiary is in
default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which it is a party or by which
it may be bound or to which any of its properties may be
subject, except for such defaults that would not have a
Material Adverse Effect. The execution and delivery of the
Purchase Agreements by the Company and compliance by the
Company with the terms of the Purchase Agreements have been
duly authorized by all necessary corporate action on the
<PAGE>
8
part of the Company and do not and will, at the Closing
Time, not result in any violation of the charter or by-laws
of the Company or any Subsidiary, as in effect at the
Closing Time, and will, at the Closing Time, not conflict
with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or
any Subsidiary (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect) under (A) any contract,
indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which the Company or any
Subsidiary is a party or by which it may be bound or to
which any of its properties may be subject or (B) any
existing applicable law, rule, regulation, judgment, order
or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their respective
properties.
(xiii) No authorization, approval, consent or
license of any government, governmental instrumentality
or court, domestic or foreign (other than under the 1933 Act
and 1933 Act Regulations, the securities or Blue Sky laws of
the various states, the securities laws of foreign
jurisdictions and the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD")), is
required for the compliance by the Company with the terms of
the Purchase Agreements, except such as have been obtained.
(xiv) Except as disclosed in the Prospectuses,
there is no action, suit or proceeding before or by any
government, governmental instrumentality or court, domestic
or foreign, now pending or, to the knowledge of the Company,
threatened against or affecting the Company or any
Subsidiary that is required to be disclosed in the
Prospectuses or that could reasonably be expected to result
in a Material Adverse Effect, or that could reasonably be
expected to materially and adversely affect the consummation
of the transactions contemplated in the Purchase Agreements;
the aggregate of all pending legal or governmental
proceedings that are not described in the Prospectuses to
which the Company or any Subsidiary is a party or which
affect any of their respective properties, including
ordinary routine litigation incidental to the business of
the Company or any Subsidiary, would not reasonably be
expected to have a Material Adverse Effect.
(xv) There are no contracts or documents of a character
required to be described in the Registration Statement or
the Prospectuses or to be filed as exhibits to the
<PAGE>
9
Registration Statement that are not described and filed as
required.
(xvi) Each of the Company and the Subsidiaries has
good and marketable title to all properties and assets
described in the Prospectuses as owned by it, free and clear
of all liens, charges or encumbrances, except such as
(A) are described in the Prospectuses or (B) could not have
a Material Adverse Effect; all of the leases and subleases
material to the business of the Company and the
Subsidiaries, considered as one enterprise, and under which
the Company or any Subsidiary holds properties described in
the Prospectuses, are in full force and effect, and neither
the Company nor any Subsidiary has any notice of any
material claim of any sort that has been asserted by anyone
adverse to the rights of the Company or any Subsidiary under
any of the leases or subleases mentioned above, or affecting
or questioning the rights of such corporation to the
continued possession of the leased or subleased premises
under any such lease or sublease, except for such claims
that could not reasonably be expected to have a Material
Adverse Effect.
(xvii) Each of the Company and the Subsidiaries
owns, possesses or has obtained all material governmental
licenses, permits, certificates, consents, orders, approvals
and other authorizations necessary to own or lease, as the
case may be, and to operate its properties and to carry on
its business as presently conducted, and neither the Company
nor any Subsidiary has received any notice of proceedings
relating to revocation or modification of any such licenses,
permits, certificates, consents, orders, approvals or
authorizations, except for such licenses, permits,
certificates, consents, orders, approvals or other
authorizations that would not have a Material Adverse
Effect.
(xviii) Each of the Company and the Subsidiaries owns
or possesses, or can acquire on reasonable terms, adequate
patents, patent licenses, trademarks, service marks and
trade names necessary to carry on its business as presently
conducted, and neither the Company nor any Subsidiary has
received any notice of infringement of or conflict with
asserted rights of others with respect to any patents,
patent licenses, trademarks, service marks or trade names
that in the aggregate could reasonably be expected to have a
Material Adverse Effect.
(xix) To the best knowledge of the Company, no
labor problem exists with its employees or with employees of
the Subsidiaries or is imminent that could reasonably be
expected to have a Material Adverse Effect, and the Company,
<PAGE>
10
without any independent investigation, is not aware of any
existing or imminent labor disturbance by the employees of
any of its or the Subsidiaries' principal suppliers,
contractors or customers that could reasonably be expected
to have a Material Adverse Effect.
(xx) The Company has not taken and will not take,
directly or indirectly, any action designed to, or that
might be reasonably expected to, cause or result in
stabilization or manipulation of the price of the Common
Stock.
(xxi) Except as disclosed in the Registration
Statement and except as would not individually or in the
aggregate reasonably be expected to have a Material Adverse
Effect (A) the Company and the Subsidiaries are each in
compliance with all applicable Environmental Laws, (B) the
Company and the Subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their
requirements, (C) to the Company's knowledge, there are no
pending or threatened Environmental Claims against the
Company or any of the Subsidiaries, and (D) under applicable
law, there are no circumstances with respect to any property
or operations of the Company or the Subsidiaries that are
reasonably likely to form the basis of an Environmental
Claim against the Company or the Subsidiaries.
For purposes of this Agreement, the following terms
shall have the following meanings: "Environmental Law"
means any United States (or other applicable jurisdiction's)
federal, state, local or municipal statute, law, rule,
regulation, ordinance, code, policy or rule of common law
and any judicial or administrative interpretation thereof
including any judicial or administrative order, consent
decree or judgment, relating to the environment, health,
safety or any chemical, material or substance, exposure to
which is prohibited, limited or regulated by any
governmental authority. "Environmental Claims" means any
and all administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings
relating in any way to any Environmental Law.
(xxii) All United States federal income tax returns
of the Company and the Subsidiaries required by law to be
filed have been filed and all taxes shown on such returns or
otherwise assessed which are due and payable have been paid,
except tax assessments against which appeals have been or
will be promptly taken and as to which adequate reserves
have been provided. All other tax returns of the Company and
the Subsidiaries required to be filed pursuant to applicable
<PAGE>
11
foreign, state, local or other law have been filed, except
insofar as the failure to file such returns could not
reasonably be expected to have a Material Adverse Effect,
and all taxes shown on such returns that have been filed or
otherwise assessed which are due and payable have been paid,
except for such taxes, if any, as are being contested, in
good faith and as to which adequate reserves have been
provided in accordance with generally accepted accounting
principles. The charges, accruals and reserves on the books
of the Company and the Subsidiaries in respect of any income
and corporate franchise tax liability for any years not
finally determined or with respect to which the applicable
statute of limitations has not expired are believed to be
adequate to meet any assessments or re-assessments for
additional income or corporate franchise tax for any years
not finally determined, except to the extent of any
inadequacy that could not have a Material Adverse Effect.
(xxiii) Each of the Company and the Subsidiaries has
fulfilled its obligations, if any, under the minimum funding
standards of Section 302 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the
regulations and published interpretations thereunder with
respect to each "pension plan" (as defined in ERISA and such
regulations and published interpretations) in which
employees of the Company or such Subsidiary are eligible to
participate and each such plan is in compliance in all
material respects with the presently applicable provisions
of ERISA and such regulations and published interpretations
(except for such failure to so comply that would not have,
singularly or in the aggregate with all other such failures
to comply, a Material Adverse Effect), and has not incurred
any unpaid liability to the Pension Benefit Guaranty
Corporation (other than for the payment of premiums in the
ordinary course) or to any such plan under Title IV of
ERISA.
(xxiv) The Shares have been approved for listing on
the New York Stock Exchange, Inc.
(b) Each of the Selling Stockholders severally represents
and warrants to, and agrees with, the Managers as follows:
(i) When the Registration Statement shall become
effective, and at all times subsequent thereto up to the
Closing Time (and, if any International Option Shares are
purchased, at the Date of Delivery), (A) neither the
Registration Statement nor any amendment or supplement
thereto will contain an untrue statement of a material fact
or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein
not misleading; and (B) neither of the Prospectuses nor any
<PAGE>
12
amendment or supplement thereto will include an untrue
statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made,
not misleading; provided, however, that, as to each Selling
-------- -------
Stockholder, the representations and warranties contained in
this subsection (i) apply only to statements or omissions
made in reliance upon and in conformity with information
which is furnished in writing to the Company by or on behalf
of such Selling Stockholder expressly for use in the
Registration Statement or the Prospectuses (a copy of all
such statements shall have been previously delivered to
you).
(ii) Such Selling Stockholder has duly authorized,
executed and delivered on _________, 1994 the Irrevocable
Power of Attorney and Custody Agreement (the "Custody
Agreement") with James M. Santo, Esq. as custodian (the
"Custodian"), and Samuel G. Wright and James M. Santo, Esq.,
as attorneys-in-fact (the "Attorneys-in-Fact"), and,
assuming the due authorization, execution and delivery by
the parties thereto other than such Selling Stockholder,
such Custody Agreement constitutes the valid, legal and
binding agreement of such Selling Stockholder, enforceable
in accordance with its terms except to the extent that
enforcement thereof may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless
of whether enforceability is considered in a proceeding in
equity or at law); such Selling Stockholder has, in
accordance with the Custody Agreement, duly authorized each
and all of the Attorneys-in-Fact to execute and deliver each
Purchase Agreement on behalf of such Selling Stockholder and
otherwise to the extent permitted under the Custody
Agreement to act on behalf of such Selling Stockholder in
connection with the Purchase Agreements, and, in accordance
with the Custody Agreement, the Attorneys-in-Fact and the
Custodian are each duly authorized by such Selling
Stockholder to deliver the Shares to be sold by such Selling
Stockholder pursuant to the Purchase Agreements and to
accept payment therefor. When executed and delivered by one
or more of the Attorneys-in-Fact on behalf of the Selling
Stockholders in accordance with the Custody Agreement, each
of the Purchase Agreements will have been duly authorized,
executed and delivered on behalf of each such Selling
Stockholder; provided, however, the representations and
-------- -------
warranties of this Section 1(b)(ii) are not applicable to
Equitable.
(iii) No authorization, approval, consent or
license of any government, governmental instrumentality or
<PAGE>
13
court, domestic or foreign (other than under the 1933 Act
and the securities or Blue Sky laws of the various states,
the securities laws of foreign jurisdictions and the rules
and regulations of the NASD), is required for the
consummation by such Selling Stockholder of the transactions
contemplated in each of the Purchase Agreements or (with
respect to each Selling Stockholder other than Equitable)
the Custody Agreement, including, without limitation, the
sale and delivery of the Shares, except such as have been
obtained.
(iv) The execution and delivery of each of the Purchase
Agreements and (with respect to each Selling Stockholder
other than Equitable) the Custody Agreement and the
consummation by such Selling Stockholder of the transactions
contemplated in each of the Purchase Agreements and (with
respect to each Selling Stockholder other than Equitable)
the Custody Agreement will not, at the Closing Time (a)
result in a breach by such Selling Stockholder of, or
constitute a default by such Selling Stockholder under, any
material agreement or instrument or any decree, judgment or
order to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or the properties of
such Selling Stockholder are subject or (b) violate (A) any
provision of the certificate of incorporation, by-law,
partnership agreement or comparable governing documents of
such Selling Stockholder or (B) any law, rule or regulation
applicable to such Selling Stockholder or to which its
properties are subject (other than for the securities or
Blue Sky laws of the various states and the rules and
regulations of the NASD and assuming compliance with the
federal securities laws and the securities laws of foreign
jurisdictions by the other parties hereto).
(v) Such Selling Stockholder has and will at the
Closing Time have (assuming the accuracy of the first clause
of paragraph 1(a)(ix) hereof) good and marketable title to
the Shares to be sold by such Selling Stockholder pursuant
to each of the Purchase Agreements, free and clear of any
pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind, other than pursuant to the Purchase
Agreements; such Selling Stockholder has full right, power
and authority to sell, transfer and deliver such Shares
pursuant to the Purchase Agreements; and, upon delivery of
such Shares and payment of the purchase price therefor as
contemplated in the Purchase Agreements, each of the U.S.
Underwriters and the Managers, as the case may be, will
receive good and marketable title to the Shares purchased by
it from such Selling Stockholder, free and clear of any
pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
<PAGE>
14
(vi) With respect to each Selling Stockholder other
than Equitable, certificates for all of the Shares to be
sold by such Selling Stockholder pursuant to the Purchase
Agreements, in suitable form for transfer by delivery or
accompanied by duly executed instruments of transfer or
assignment executed in blank, have been placed in custody
with the Custodian pursuant to the Custody Agreement for the
purpose of effecting delivery, in accordance with the
Custody Agreement, pursuant to the Purchase Agreements.
(vii) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed
to, or that might be reasonably expected to, cause or result
in stabilization or manipulation of the price of the Common
Stock; and such Selling Stockholder has not distributed and
will not distribute any prospectus or other offering
material in connection with the offering and sale of the
Shares other than any preliminary prospectus filed with the
Commission or the Prospectuses or other material permitted
by the 1933 Act or the 1933 Regulations.
(viii) Such Selling Stockholder is duly organized
and subsisting and in good standing under the laws of its
jurisdiction of incorporation or organization, as the case
may be, with all necessary power and authority to (A) (with
respect to each Selling Stockholder other than Equitable)
execute, deliver and perform the Custody Agreement, (B)
enter into and perform each of the Purchase Agreements and
(C) sell and deliver the Shares to the U.S. Underwriters and
the Managers, as the case may be, in accordance with each of
the Purchase Agreements.
(c) Any certificate signed by any officer of the Company or
any Subsidiary
and delivered to you or to counsel for the Underwriters shall be
deemed a representation and warranty by the Company to each
Manager as to the matters covered thereby; and any certificate
signed by or on behalf of the Selling Stockholders as such and
delivered to you or to counsel for the Underwriters shall be
deemed a representation and warranty by the Selling Stockholders
to each Manager as to the matters covered thereby.
Section 2. Sale and Delivery to the Managers; Closing.
------------------------------------------
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set
forth, each Selling Stockholder agrees, severally and not
jointly, to sell to each Manager the number of Initial
International Shares set forth opposite the name of such Selling
Stockholder on Schedule B, and each Manager agrees, severally and
not jointly, to purchase from each Selling Stockholder, at the
purchase price per share for the Initial International Shares to
<PAGE>
15
be agreed upon by Equitable, one or more of the Attorneys-in-Fact
and by the Co-Lead Managers in accordance with Section 2(b) or
2(c), and set forth in the International Price Determination
Agreement, the number of Initial International Shares set forth
opposite the name of such Manager in Schedule A (except as
otherwise may be provided in the International Price
Determination Agreement) plus any additional number of Initial
International Shares which such Manager may become obligated to
purchase pursuant to the provisions of Section 11 hereof, subject
to such adjustments as you, in your discretion, shall make to
eliminate any sales or purchases of fractional shares. The
relation of the number of Initial International Shares set forth
opposite the name of such Manager in Schedule A to the total
number of Initial International Shares is hereinafter referred to
as such Manager's "Underwriting Commitment". If the Company
elects to rely on Rule 430A, Schedules A and B may be attached to
the International Price Determination Agreement.
(b) If the Company has elected not to rely upon Rule 430A,
the purchase price per share for the Initial International Shares
to be paid by the several Managers shall be agreed upon and set
forth in the International Price Determination Agreement, dated
the date hereof, and an amendment to the Registration Statement
containing such per share price information will be filed before
the Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A, the
purchase price per share for the Initial International Shares to
be paid by the several Managers shall be agreed upon and set
forth in the International Price Determination Agreement. In the
event that the International Price Determination Agreement has
not been executed by the close of business on the fourth business
day following the date on which the Registration Statement
becomes effective, this Agreement shall terminate forthwith,
without liability of any party to any other party except that
Sections 7 and 8 shall remain in effect.
(d) In addition, on the basis of the representations and
warranties herein contained, and subject to the terms and
conditions herein set forth, the Selling Stockholders grant the
option to the Managers, severally and not jointly, to purchase up
to an aggregate of 150,000 additional International Option
Shares, as set forth opposite such Selling Stockholder's name on
Schedule B, at the same purchase price per share as shall be
applicable to the Initial International Shares. The option
hereby granted will expire 30 days after the date upon which the
Registration Statement becomes effective or, if the Company has
elected to rely upon Rule 430A, the date of the International
Price Determination Agreement, and may be exercised, in whole or
in part (but not more than once), only for the purpose of
covering over-allotments that may be made in connection with the
offering and distribution of the Initial International Shares
<PAGE>
16
upon notice by you to Equitable and any of the Attorneys-in-Fact
setting forth the aggregate number of International Option Shares
as to which the several Managers are exercising the option, and
the time and date of payment and delivery thereof. Such time and
date of delivery (the "Date of Delivery") shall be determined by
you but shall not be later than seven full business days after
the exercise of such option, nor in any event prior to the
Closing Time. If the option is exercised as to only a portion of
the International Option Shares, each of the Selling Stockholders
will sell their pro rata portion of the International Option
Shares to be purchased by the Managers. If the option is
exercised as to all or any portion of the International Option
Shares, the International Option Shares as to which the option is
exercised shall be purchased by the Managers, severally and not
jointly, in their respective Underwriting Commitments (except as
otherwise provided in the International Price Determination
Agreement), subject to such adjustments as you, in your
discretion, shall make to eliminate any sales or purchases of
fractional shares.
(e) `Payment of the purchase price for, and delivery of
certificates for, the Initial International Shares shall be made
at the offices of Shearman & Sterling, 599 Lexington Avenue,
New York, New York 10022, or at such other place as shall be
agreed upon by the Company, Equitable, any of the Attorneys-in-
Fact on behalf of the other Selling Stockholders and you, at
10:00 A.M. either (i) on the fifth full business day after the
effective date of the Registration Statement, or (ii) if the
Company has elected to rely upon Rule 430A, the fifth full
business day after execution of the International Price
Determination Agreement (unless, in either case, postponed
pursuant to Section 11 or 12), or at such other time not more
than ten full business days thereafter as you, the Company and
any of the Attorneys-in-Fact on behalf of the Selling
Stockholders shall determine (such date and time of payment and
delivery being herein called the "Closing Time"). In addition,
in the event that any or all of the International Option Shares
are purchased by the Managers, payment of the purchase price for,
and delivery of certificates for, such International Option
Shares shall be made at the offices of Shearman & Sterling set
forth above, or at such other place as the Company, Equitable and
any of the Attorneys-in-Fact on behalf of the other Selling
Stockholders and you shall determine, on the Date of Delivery as
specified in the notice from you to the Company. Payment shall
be made to Equitable or any of the Attorneys-in-Fact, as the case
may be, by certified or official bank check or checks in New York
Clearing House funds payable to the order of Equitable or such
Attorney-in-Fact in trust for the other Selling Stockholders, as
the case may be, against delivery to you for the respective
accounts of the several Managers of certificates for the
International Shares to be purchased by them.
<PAGE>
17
(f) Certificates for the Initial International Shares and
International Option Shares to be purchased by the Managers shall
be in such denominations and registered in such names as you may
request in writing at least two full business days before the
Closing Time or the Date of Delivery, as the case may be. The
certificates for the Initial International Shares and
International Option Shares will be made available in New York
City for examination and packaging by you not later than
10:00 A.M. on the business day prior to the Closing Time or the
Date of Delivery, as the case may be.
(g) It is understood that each Manager has authorized you,
for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the International Shares that
it has agreed to purchase. You, individually and not as Co-Lead
Managers, may (but shall not be obligated to) make payment of the
purchase price for the Initial International Shares, or
International Option Shares, to be purchased by any Manager whose
check or checks shall not have been received by the Closing Time
or the Date of Delivery, as the case may be.
Section 3. Certain Covenants of the Company. The
--------------------------------
Company covenants with each Manager as follows:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective and, if the Company
elects to rely upon Rule 430A and subject to Section 3(b) hereof,
will comply with the requirements of Rule 430A and will notify
you immediately, and confirm the notice in writing, if requested,
(i) when the Registration Statement, or any post-effective
amendment to the Registration Statement, shall have become
effective, or any supplement to the Prospectuses or any amended
Prospectus shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the
Commission to amend the Registration Statement or amend or
supplement the Prospectuses or for additional information and
(iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the
International Shares for offering or sale in any jurisdiction, or
of the institution or threatening of any proceedings for any of
such purposes. The Company will use every reasonable effort to
prevent the issuance of any such stop order or of any order
preventing or suspending such use and, if any such order is
issued, to obtain the lifting thereof at the earliest possible
moment.
(b) The Company will not at any time file or make any
amendment to the Registration Statement, or any amendment or
supplement (i) if the Company has not elected to rely upon
<PAGE>
18
Rule 430A, to the Prospectuses (including the documents
incorporated by reference into the Prospectuses) or (ii) if the
Company has elected to rely upon Rule 430A, to either the
prospectus included in the Registration Statement at the time it
becomes effective or to the Prospectuses (including documents
incorporated by reference into such prospectuses or to the
Prospectuses pursuant to Item 12 and Rule 412), of which you
shall not have previously been advised and furnished a copy, or
to which you or counsel for the Underwriters shall reasonably
object.
(c) The Company has furnished or will furnish to you as
many signed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or
after the Registration Statement becomes effective, copies of all
exhibits and documents filed therewith (including documents
incorporated by reference into the Prospectuses pursuant to
Item 12 and Rule 412) and signed copies of all consents and
certificates of experts, as you may reasonably request and has
furnished or will furnish to you, for each other Manager, one
conformed copy of the Registration Statement as originally filed
and of each amendment thereto (including documents incorporated
by reference into the Prospectuses but without exhibits).
(d) The Company will deliver to each Manager, without
charge, from time to time until the effective date of the
Registration Statement (or, if the Company has elected to rely
upon Rule 430A, until the date of the International Price
Determination Agreement), as many copies of each preliminary
prospectus as such Manager may reasonably request, and the
Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will deliver to each
Manager, without charge, as soon as the Registration Statement
shall have become effective (or, if the Company has elected to
rely upon Rule 430A, as soon as practicable on or after the date
of the International Price Determination Agreement) and
thereafter from time to time as requested during the period when
the Prospectuses are required to be delivered under the 1933 Act,
such number of copies of the Prospectuses (as supplemented or
amended) as such Manager may reasonably request.
(e) The Company will comply to the best of its ability with
the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the
distribution of the International Shares as contemplated in this
Agreement and in the International Prospectus. If at any time
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the International Shares any event shall
occur or condition exist as a result of which it is necessary, in
the opinion of counsel for the Underwriters or counsel for the
Company, to amend the Registration Statement or amend or
supplement the Prospectuses in order that the Prospectuses will
<PAGE>
19
not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser, or if it shall be
necessary, in the opinion of either such counsel, at any such
time to amend the Registration Statement or amend or supplement
the Prospectuses in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b)
hereof, such amendment or supplement as may be necessary to
correct such untrue statement or omission or to make the
Registration Statement or the Prospectuses comply with such
requirements.
(f) The Company will use its best efforts, in cooperation
with the Managers, to qualify the Shares for offering and sale
under the applicable securities laws of such states and other
jurisdictions as you may designate and to maintain such
qualifications in effect for a period of not less than one year
from the effective date of the Registration Statement; provided,
--------
however, that the Company shall not be obligated to file any
-------
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in
which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not
otherwise so subject. The Company will file such statements and
reports as may be required by the laws of each jurisdiction in
which the International Shares have been qualified as above
provided.
(g) The Company will make generally available to its
security holders as soon as practicable, but not later than 45
days after the close of the period covered thereby, an earnings
statement of the Company (in form complying with the provisions
of Rule 158 of the 1933 Act Regulations), covering a period of 12
months beginning after the effective date of the Registration
Statement and covering a period of 12 months beginning after the
effective date of any post-effective amendment to the
Registration Statement but not later than the first day of the
Company's fiscal quarter next following such respective effective
dates.
(h) The Company, during the period when the Prospectuses
are required to be delivered under the 1933 Act, will file
promptly all documents required to be filed with the Commission
pursuant to Section 13 or 14 of the 1934 Act subsequent to the
time the Registration Statement becomes effective.
(i) For a period of five years after the Closing Time, the
Company will furnish to you and, upon request, to each Manager,
copies of all annual reports, quarterly reports and current
reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or
<PAGE>
20
such other similar forms as may be designated by the Commission,
and such other documents, reports and information as shall be
furnished by the Company to its stockholders or security holders
generally available.
(j) For a period of 90 days from the date hereof, the
Company will not, without the prior written consent of Merrill
Lynch International Limited, on behalf of the Managers, directly
or indirectly, sell, offer to sell, grant any option for the sale
of, or otherwise dispose of, any Common Stock or securities
convertible into Common Stock, other than to the Managers
pursuant to the Purchase Agreements and other than pursuant to
employee benefit plans and dividend reinvestment plans that (i)
are existing on the date hereof and (ii) are described in the
Prospectuses.
(k) If the Company has elected to rely upon Rule 430A, it
will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the
event that it was not, it will promptly file such prospectus.
(l) The Company has complied and will comply with all the
provisions of Florida H.B. 1771, codified as Section 517.075 of
the Florida statutes, and all regulations promulgated thereunder
relating to issuers doing business in Cuba.
Section 4. Payment of Expenses. The Company will pay
-------------------
and bear all costs and expenses incident to the performance of
the obligations of the Company and of the Selling Stockholders
under the Purchase Agreements, including (a) the preparation,
printing and filing of the Registration Statement (including
financial statements and exhibits), as originally filed and as
amended, the preliminary prospectuses and the Prospectuses and
any amendments or supplements thereto, and the cost of furnishing
copies thereof to the Managers, (b) the preparation, printing and
distribution of the Purchase Agreements (including the U.S. Price
Determination Agreement and International Price Determination
Agreement), the International Shares and the Blue Sky Survey,
(c) the delivery of the International Shares to the Managers,
including any stock transfer taxes payable upon the sale of the
International Shares to the Managers, (d) the fees and
disbursements of counsel for the Company and for the Selling
Stockholders and accountants for the Company and (e) the
qualification of the Shares under the applicable securities laws
in accordance with Section 3(f) and any filing for review of the
offering with the NASD, including filing fees and fees and
disbursements of counsel for the U.S. Underwriters in connection
therewith and in connection with the Blue Sky Survey; provided,
--------
however, that the Selling Stockholder will be responsible for any
-------
stock transfer taxes payable upon the sale of the U.S. Shares to
the U.S. Underwriters.
<PAGE>
21
If this Agreement is terminated by you in accordance
with the provisions of Section 5, 10(a)(i) or 12, the Company
shall reimburse the Managers for all their out-of-pocket
expenses, including the fees and disbursements of counsel for the
Underwriters.
Section 5. Conditions of Managers' Obligations. In
-----------------------------------
addition to the execution and delivery of the International Price
Determination Agreement, the obligations of the several Managers
to purchase and pay for the International Shares that they have
respectively agreed to purchase hereunder (including any
International Option Shares as to which the option granted in
Section 2 has been exercised and the Date of Delivery determined
by you is the same as the Closing Time) are subject to the
accuracy of the representations and warranties of the Company and
the Selling Stockholders contained herein (including those
contained in the International Price Determination Agreement or
in certificates of any officer of the Company or any Subsidiary
or certificates by or on behalf of the Selling Stockholders
delivered pursuant to the provisions hereof, to the performance
by the Company and the Selling Stockholders of their obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective
not later than 5:30 P.M. on the date of the Purchase Agreements
or, with your consent, at a later time and date not later,
however, than 5:30 P.M. on the first business day following the
date hereof, or at such later time or on such later date as you
may agree to in writing with the approval of a majority in
interest of the several Managers; and at the Closing Time no stop
order suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act and no proceedings for
that purpose shall have been instituted or shall be pending or,
to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel for the
Underwriters. If the Company has elected to rely upon Rule 430A,
prospectuses containing the Rule 430A Information shall have been
filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have
been filed and declared effective in accordance with the
requirements of Rule 430A).
(b) At the Closing Time, you shall have received a signed
opinion of Skadden, Arps, Slate, Meagher & Flom, special counsel
for the Company, dated as of the Closing Time, together with
signed or reproduced copies of such opinion for each of the other
Managers, in form and substance reasonably satisfactory to
counsel for the Underwriters, to the effect that:
<PAGE>
22
(i) Each of the Company and Eckerd Holdings II, Inc.
has been duly organized and is subsisting as a corporation
and in good standing under the laws of the State of Delaware
with corporate power and corporate authority under such laws
to own, lease and operate its properties and conduct its
business as described in the Prospectuses.
(ii) The Shares have been duly authorized and validly
issued and (upon the assumption, which such counsel need not
independently verify, that the Company has received the full
consideration for such Shares) are fully paid and
non-assessable; no holder thereof is or will be subject to
personal liability by reason of being such a holder; and the
Shares are not subject to the preemptive rights of any
stockholder of the Company.
(iii) The Shares conform in all material respects
as to legal matters to the description thereof in the
Prospectus under the caption "Description of Capital Stock".
(iv) Each of the Purchase Agreements has been duly
authorized, executed and delivered by the Company.
(v) No authorization, approval, consent or license of
any government, governmental instrumentality or court (other
than under the 1933 Act and 1933 Act Regulations, the
securities or Blue Sky laws of the various states, and the
rules and regulations of the NASD as to which such counsel
need express no opinion), is required under the general
corporate laws of the State of Delaware, the laws of the
State of New York or the laws of the United States, in each
case, that in such counsel's experience are normally
applicable to the transactions of the type provided for by
the Purchase Agreements, except such as have been obtained.
(vi) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in the
Prospectuses that are not described as required, nor of any
contracts or documents of a character required to be
described or referred to in the Registration Statement or
the Prospectuses or to be filed as exhibits to the
Registration Statement that are not described, referred to
or filed as required.
(vii) The statements made in the Prospectuses under
the caption "Description of Capital Stock", to the extent
that they constitute matters of law or legal conclusions,
have been reviewed by such counsel and fairly summarize the
information required to be disclosed therein in all material
respects.
<PAGE>
23
(viii) The execution and delivery of the Purchase
Agreements, the sale and delivery of the Shares and
compliance by the Company with the terms of the Purchase
Agreements will not, as of the date of the Closing Time,
result in any violation of the charter or by-laws of the
Company or any Subsidiary as in effect at the Closing Time,
and will not, as of the date of the Closing Time, conflict
with or result in a breach of any of the terms or provisions
of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any Subsidiary under
(A) any contract, indenture, mortgage, loan agreement, note,
lease or any other agreement or instrument filed or
incorporated by reference as an exhibit to the Registration
Statement (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that would not have a
Material Adverse Effect), (B) the general corporate laws of
the State of Delaware, the laws of the State of New York or
the laws of the United States, in each case, that in such
counsel's experience are normally applicable to the
transactions of the type provided for by the Purchase
Agreements (other than the 1933 Act and 1933 Act Regulations
and the securities or Blue Sky laws of the various states
and the rules and regulations of the NASD as to which such
counsel need express no opinion), or (C) any judgment, order
or decree listed on a schedule to such opinion (which the
Company has advised such counsel are the only judgements,
orders or decrees of any government, governmental
instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of
their respective properties, by which the Company or any
Subsidiary is bound. Such counsel need express no opinion,
however, as to whether or not the execution and delivery of
the Purchase Agreements, the sale and delivery of the Shares
and compliance by the Company with the terms of the Purchase
Agreements will constitute a violation of or a default under
any covenant, restriction or provision with respect to
financial ratios or tests or any aspect of the financial
condition or results of operations of the Company.
(ix) Such counsel has been advised by the staff of the
Commission that the Registration Statement became effective
under the 1933 Act on the date specified in such opinion;
any required filing of the Prospectuses or any supplement
thereto pursuant to Rule 424(b) has been made in the manner
and within the time period required by Rule 424(b); and, to
the best knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been
instituted or are pending or are contemplated under the 1933
Act.
<PAGE>
24
(x) The Registration Statement (including the
Rule 430A Information, if applicable) and the Prospectuses,
including the documents incorporated by reference therein,
and each amendment or supplement thereto (except for the
financial statements and other financial or statistical data
included or incorporated by reference therein or omitted
therefrom, as to which such counsel need express no
opinion), as of their respective effective or issue dates,
appear on their face to have been appropriately responsive
in all material respects to the requirements of the 1933 Act
and the 1933 Act Regulations, although such counsel need not
pass upon, and need not assume any responsibility for, the
accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectuses
except as otherwise specifically referred to in paragraph
(vii) above.
(xi) The documents incorporated by reference in the
Prospectuses (except for the financial statements, financial
statement schedules and other financial or statistical data
included therein or omitted therefrom or the exhibits to the
Registration Statement, as to which such counsel need
express no opinion and except to the extent that any
statement therein is modified or superseded in the
Prospectuses or by a subsequent document incorporated by
reference therein), as of the dates they were filed with the
Commission, appear on their face to have been appropriately
responsive in all material respects to the requirements of
the 1934 Act and the 1934 Act Regulations, although such
counsel need not pass upon, and need not assume any
responsibility for, the accuracy, completeness or fairness
of the statements contained in the Registration Statement or
the Prospectuses, except as otherwise specifically referred
to in paragraph (vii) above.
(xii) To the best knowledge of such counsel, each
Selling Stockholder is the registered holder of title to the
Shares to be sold by such Selling Stockholder pursuant to
the Purchase Agreements, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of
any kind, and has full right, power and authority to sell,
transfer and deliver such Shares pursuant to the Purchase
Agreements. By delivery of a certificate or certificates
therefor such Selling Stockholder will transfer to the U.S
Underwriters and the Managers, as the case may be, who have
purchased such Shares pursuant to the Purchase Agreements
(without notice of any defect in the title of such Selling
Stockholder and who are otherwise bona fide purchasers for
purposes of the Uniform Commercial Code) all of such Selling
Stockholder's interest in such Shares, free and clear of any
pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind.
<PAGE>
25
Such opinion shall be to such further effect that, in
connection with the preparation of the Registration Statement and
the Prospectuses, such counsel has participated in conferences
with officers and representatives of the Company, in-house
counsel for the Company, representatives of the independent
accountants of the Company, the Managers and counsel for the
Underwriters at which the contents of the Registration Statement
and the Prospectuses and related matters were discussed, and
although such counsel is not passing upon, and does not assume
any responsibility for, the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the
Prospectuses and has made no independent check or verification
thereof except as otherwise specifically referred to in
paragraph (vii), above, on the basis of the foregoing, no facts
have come to the attention of such counsel that have led them to
believe (A) that the Registration Statement (including the
Rule 430A Information, if applicable) or any amendment thereto
(except for the financial statements, financial statement
schedules and other financial or statistical data included or
incorporated by reference therein or omitted therefrom, as to
which such counsel need express no opinion), at the time the
Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading or (B) that the
Prospectuses or any amendment or supplement thereto (except for
the financial statements, financial statement schedules and other
financial or statistical data included or incorporated by
reference therein or omitted therefrom, as to which such counsel
need express no opinion), as of its date and at the Closing Time,
contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Such opinion shall be to such further effect with
respect to other legal matters relating to the Purchase
Agreements and the sale of the Shares pursuant to the Purchase
Agreements as counsel for the Underwriters may reasonably
request. In giving such opinion, such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the
law of the State of New York, the federal law of the United
States and the corporate law of the State of Delaware, upon
opinions of other counsel, who shall be counsel reasonably
satisfactory to counsel for the Underwriters, in which case the
opinion shall also be addressed to the Managers and state that
such other counsel believes you and they are entitled to so rely.
Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and the
Subsidiaries and certificates of public officials.
<PAGE>
26
(c) At the Closing Time, you shall have received a signed
opinion of James M. Santo, Esq., Senior Vice
President/Administration for the Company, dated as of the Closing
Time, together with signed or reproduced copies of such opinion
for each of the other Managers, in form and substance reasonably
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Company is duly qualified to transact business
as a foreign corporation and is in good standing in each
other jurisdiction in which it owns or leases property of a
nature, or transacts business of a type, that would make
such qualification necessary, except to the extent that such
failure to so qualify or be in good standing would not have
a Material Adverse Effect and except for jurisdictions that
do not recognize the legal concepts of good standing or
qualification.
(ii) Each Subsidiary has been duly organized and is
subsisting as a corporation, and is in good standing under
the laws of the jurisdiction of its incorporation with
corporate power and corporate authority under such laws to
own, lease and operate its properties and conduct its
business as described in the Prospectuses, except to the
extent that such failure to so qualify or be in good
standing would not have a Material Adverse Effect and except
for jurisdictions not recognizing the legal concept of good
standing.
(iii) Each Subsidiary is duly qualified to transact
business as a foreign corporation and is in good standing in
each other jurisdiction in which it owns or leases property
of a nature, or transacts business of a type, that would
make such qualification necessary, except to the extent that
such failure to so qualify or be in good standing would not
have a Material Adverse Effect and except for jurisdictions
not recognizing the legal concepts of good standing or
qualification.
(iv) All of the outstanding shares of capital stock of
the Company have been duly authorized and validly issued and
are fully paid and non-assessable; no holder thereof is or
will be subject to personal liability by reason of being
such a holder; and none of the outstanding shares of capital
stock of the Company was issued in violation of the
preemptive rights of any stockholder of the Company.
(v) Such counsel does not know of any statutes or
regulations, or any pending or threatened legal or
governmental proceedings, required to be described in the
Prospectuses that are not described as required, nor of any
contracts or documents of a character required to be
described or referred to in the Registration Statement or
<PAGE>
27
the Prospectuses or to be filed as exhibits to the
Registration Statement that are not described, referred to
or filed as required.
(vi) To the knowledge of such counsel the descriptions
in the Prospectuses of the statutes, regulations, legal or
governmental proceedings, contracts and other documents
therein described fairly summarize the information required
to be shown.
(vii) Such counsel does not know of any default
that exists in the performance or observance of any material
obligation, agreement, covenant or condition contained in
any contract, indenture, loan agreement, note, lease or
other agreement or instrument that is described or referred
to in the Registration Statement or the Prospectuses or
filed as an exhibit to the Registration Statement, except
for such defaults that would not have a Material Adverse
Effect.
(viii) The execution and delivery of the Purchase
Agreements, the sale and delivery of the Shares and
compliance by the Company with the terms of the Purchase
Agreements do not and will not result in any violation of
the charter or by-laws of the Company or any Subsidiary, and
do not and will not conflict with, or result in a breach of
any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the
Company or any Subsidiary under (A) any indenture, mortgage
or loan agreement, or any other agreement or instrument
known to such counsel, to which the Company or any
Subsidiary is a party or by which it may be bound or to
which any of its properties may be subject (except for such
conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect)
and (B) any judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or
any of its properties, except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not
have a Material Adverse Effect. Such counsel need express
no opinion, however, as to whether or not the execution and
delivery of the Purchase Agreements, the sale of the Shares
and compliance by the Company with the terms of the Purchase
Agreements will constitute a violation of or a default under
any covenant, restriction or provision with respect to
financial ratios or tests or any aspect of the financial
condition or results of operations of the Company.
<PAGE>
28
(ix) The authorized, issued and outstanding capital
stock of the Company is as set forth in the
Prospectuses under the heading "Capitalization".
(x) Except as set forth in Schedule C attached
hereto, all of the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable; all of such shares
are owned by the Company, directly or through one or more
Subsidiaries, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind
except for the Credit Agreement and the Pledge Agreement; no
holder thereof is subject to personal liability by reason of
being such a holder and none of such shares was issued in
violation of the preemptive rights of any stockholder of the
Subsidiaries.
(xi) To the knowledge of such counsel, the execution
and delivery of the Purchase Agreements, the sale of the
Shares and the transactions contemplated in the Purchase
Agreements and compliance by the Company with the terms of
the Purchase Agreements do not and will not result in any
conflict with, constitute a default under or result in the
creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Subsidiary
under any existing applicable law, rule or regulation (other
than under the securities or Blue Sky laws of the various
states, the securities laws of foreign jurisdictions and the
rules and regulations of the NASD as to which such counsel
need express no opinion).
Such opinion shall be to such further effect that in
connection with the preparation of the Registration Statement and
the Prospectuses such counsel has participated in conferences
with officers and representatives of the Company, special counsel
for the Company, representatives of the independent accountants
of the Company, the Managers and counsel for the Underwriters at
which the contents of the Registration Statement and the
Prospectuses and related matters were discussed, and although
such counsel is not passing upon, and does not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectuses and has made no independent check or verification
thereof except as otherwise specifically referred to in
paragraph (ix), on the basis of the foregoing, no facts have come
to the attention of such counsel that have led him to believe
(A) that the Registration Statement (including the Rule 430A
Information, if applicable) or any amendment thereto (except for
the financial statements, financial statement schedules and other
financial or statistical data included or incorporated by
reference therein or omitted therefrom, as to which such counsel
need express no opinion), at the time the Registration Statement
<PAGE>
29
or any such amendment became effective, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or (B) that the Prospectuses or any
amendment or supplement thereto (except for the financial
statements, financial statement schedules and other financial or
statistical data included or incorporated by reference therein or
omitted therefrom, as to which such counsel need express no
opinion), as of its date and at the Closing Time, included or
includes an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
Such opinion shall be to such further effect with
respect to other legal matters relating to the Purchase
Agreements and the sale of the Shares pursuant to the Purchase
Agreements as counsel for the Underwriters may reasonably
request. In giving such opinion, such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the
law of the State of Ohio, the federal law of the United States
and the corporate law of the State of Delaware, upon opinions of
other counsel, who shall be counsel reasonably satisfactory to
counsel for the Underwriters, in which case the opinions shall
also be addressed to the Managers and state that such other
counsel believes you and they are entitled to so rely. Such
counsel may also state that, insofar as such opinion involves
factual matters, he has relied, to the extent he deems proper,
upon certificates of officers of the Company and the Subsidiaries
and certificates of public officials. Such counsel may also
state that such counsel is qualified to practice law in the State
of Ohio and does not purport to be an expert on any law other
than the laws of the State of Ohio and the Federal laws of the
United States and that, insofar as such opinion relates to the
general corporate law of the State of Delaware, that such counsel
has made such investigation of such law as he has deemed
necessary as a basis for such opinion.
(d) At the Closing Time you shall have received a signed
opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel for certain of the
Selling Stockholders, and from Solovay & Edlin, P.C., counsel for
certain of the Selling Stockholders, each dated as of the Closing
Time, together with signed or reproduced copies of such opinion
for each of the other U.S. Underwriters, in form and substance
reasonably satisfactory to counsel for the Underwriters, each,
with respect to the Selling Stockholders that such counsel
represents, to the effect that:
(i) The execution, delivery and performance of the
Purchase Agreements has been duly and validly authorized by
the Selling Stockholders and each of the Purchase Agreements
<PAGE>
30
has been duly executed and delivered by one of the
Attorneys-in-Fact on behalf of the Selling Stockholders and
each such Selling Stockholder has duly executed and
delivered the Custody Agreement.
(ii) No authorization, approval, consent or license of
any government, governmental instrumentality or court is
required under the laws of the United States or the state of
New York (other than under the 1933 Act, under Blue Sky or
state securities law or the securities laws of foreign
jurisdictions) for the consummation by the Selling
Stockholders of the transactions contemplated by the
Purchase Agreements and the Custody Agreement.
(iii) The execution and delivery of the Custody
Agreement and of the Purchase Agreements by the Selling
Stockholders and the compliance by the Selling Stockholders
with the terms thereof does not conflict with or result in a
violation of (a) the certificate of incorporation, the by-
laws, the partnership agreement or similar governing
document of any of the Selling Stockholders or (b) any
existing applicable law, rule or regulation (other than
under the 1933 Act, under Blue Sky or state securities law
or the securities laws of foreign jurisdictions or the rules
and regulations of the NASD) or any judgment, order or
decree known to such counsel of any government, governmental
instrumentality or court, domestic or foreign, having
jurisdiction over the Selling Stockholders.
(iv) The Selling Stockholders, as the case may be, have
been organized and are subsisting in good standing as
corporations or partnerships under the laws of the
jurisdiction of their incorporation or organization with all
necessary power and authority under such laws to execute,
deliver and perform the Custody Agreement and the Purchase
Agreements.
(v) Each Attorney-in-Fact has been duly authorized by
each Selling Stockholder to deliver the Shares on
behalf of such Selling Stockholder in accordance with the
terms of the Purchase Agreements and the Custody Agreement;
provided, however, that the opinions to be rendered pursuant to
-------- -------
this Section 5(d) with respect to the Custody Agreement need not
be rendered with respect to Equitable.
Such opinion shall be to such further effect with
respect to other legal matters relating to the Purchase
Agreements and the sale of the Shares pursuant to the Purchase
Agreements as counsel for the Underwriters may reasonably
request. In giving such opinion, such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the
<PAGE>
31
law of the State of New York, the federal law of the United
States and the corporate law of the State of Delaware, upon
opinions of other counsel, who shall be counsel reasonably
satisfactory to counsel for the Underwriters, in which case the
opinion shall also be addressed to the Managers and state that
such other counsel believes you and they are entitled to so rely.
Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the Company and the
Subsidiaries, certificates of officers or partners, as the case
may be, of the such Selling Stockholders and on certificates of
public officials.
(e) At the Closing Time, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the
Underwriters, dated as of the Closing Time, together with signed
or reproduced copies of such opinion for each of the other
Managers, to the effect that the opinions delivered pursuant to
Sections 5(b), 5(c) and 5(d) appear on their face to be
appropriately responsive to the requirements of the Purchase
Agreements except, specifying the same, to the extent waived by
you, and with respect to the incorporation and legal existence of
the Company, the Shares, the Purchase Agreements, the
Registration Statement, the Prospectuses, the documents
incorporated by reference and such other related matters as you
may require. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the
law of the State of New York, the federal law of the United
States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel satisfactory to you. Such counsel
may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and the Subsidiaries and
certificates of public officials; provided that such certificates
have been delivered to the Managers.
(f) At the Closing Time, (i) the Registration Statement and
the Prospectuses, as they may then be amended or supplemented,
shall conform to the requirements of the 1933 Act and the 1933
Act Regulations, the Company shall have complied in all material
respects with Rule 430A (if it shall have elected to rely
thereon) and neither the Registration Statement nor the
Prospectuses, as they may then be amended or supplemented, shall
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein (in the case of the Prospectuses, in light
of the circumstances under which they were made) not misleading,
(ii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement, any
material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of
<PAGE>
32
the Company and the Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business,
(iii) no action, suit or proceeding shall be pending or, to the
knowledge of the Company, threatened against the Company or any
Subsidiary that would be required to be set forth in the
Prospectuses other than as set forth therein and no proceedings
shall be pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary before or by any
government, governmental instrumentality or court, domestic or
foreign, that could reasonably be expected to result in a
Material Adverse Effect other than as set forth in the
Prospectuses, (iv) the Company shall have complied with all
agreements and satisfied all conditions set forth in this
Agreement on its part to be performed or satisfied at or prior to
the Closing Time and (v) the other representations and warranties
of the Company set forth in Section 1(a) shall be accurate as
though expressly made at and as of the Closing Time. At the
Closing Time, you shall have received a certificate of the
President or a Vice President, and the Treasurer or the Senior
Vice President/Finance, of the Company (each in their capacity as
an officer of the Company and not as an individual), dated as of
the Closing Time, to such effect.
(g) At the Closing Time, the representations and warranties
of each Selling Stockholder set forth in Section 1(b) shall be
accurate as though expressly made at and as of the Closing Time.
At the Closing Time, you shall have received a certificate of or
on behalf of each Selling Stockholder, dated as of the Closing
Time, to such effect with respect to such Selling Stockholder and
a certificate of or on behalf of each Selling Stockholder
certifying as to the accuracy and completeness of the attached
certificate of incorporation, by-laws, partnership agreement or
other comparable governing document and resolutions of the board
of directors regarding the sale and delivery of the Shares, the
authorization, execution and delivery of the Purchase Agreements
and the Custody Agreement.
(h) At the time that the Purchase Agreements are executed,
you shall have received from KPMG Peat Marwick a letter, dated
such date, in form and substance reasonably satisfactory to you,
together with signed or reproduced copies of such letter for each
of the other Managers, confirming that they are independent
public accountants with respect to the Company within the meaning
of the 1933 Act and the applicable published 1933 Act
Regulations, and stating in effect that:
(i) in their opinion, the audited financial statements
included or incorporated by reference in the Registration
Statement and the Prospectuses comply as to form in all
material respects with the applicable accounting
requirements of the 1933 Act and the published rules and
regulations thereunder;
<PAGE>
33
(ii) on the basis of procedures (but not an examination
in accordance with generally accepted auditing standards)
consisting of a reading of the latest available unaudited
interim consolidated financial statements of the Company
included or incorporated by reference in the Registration
Statement and the Prospectuses, a reading of the minutes of
all meetings of the stockholders and directors of the
Company and the Subsidiaries and each Committee of the
Company's Board of Directors and of each Subsidiary's Board
of Directors since ___, inquiries of certain officials of
the Company and the Subsidiaries responsible for financial
and accounting matters, a limited review in accordance with
standards established by the American Institute of Certified
Public Accountants with respect to the ___ and ___ periods
performed at the request of the Company, and such other
inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe
that:
(A) at _____ and at a specified date not more
than five days prior to the date of the Purchase
Agreements, there was any change in the capital stock
of the Company and the Subsidiaries or any decrease in
the consolidated net current assets or stockholders'
equity of the Company and the Subsidiaries or any
increase in the long-term debt of the Company and the
Subsidiaries, in each case as compared with amounts
shown in the latest combined balance sheet included in
the Registration Statement, except in each case for
changes, decreases or increases that the Registration
Statement discloses have occurred or may occur; or
(B) for the period from January 29, 1994 to a
specified date not more than five days prior to the
date of the Purchase Agreements, there was any decrease
in consolidated net sales, total or per share amounts
of income before extraordinary items or of net income
in each case as compared with the comparable period in
the preceding year, except in each case for any
decreases that the Registration Statement discloses
have occurred or may occur;
(iii) based upon the procedures set forth in clause
(ii) above and a reading of the Selected Financial Data
included in the Registration Statement, nothing has come to
their attention that gives them reason to believe that the
Selected Financial Data included in the Registration
Statement do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act
and the 1933 Act Regulations, or that the information set
forth therein is not fairly stated in relation to the
financial statements from which it was derived;
<PAGE>
34
(iv) they are unable to and do not express any opinion
on the Pro Forma Consolidated Statement of Operations (the
"Pro Forma Statement") included in the Registration
Statement or on the pro forma adjustments applied to the
historical amounts included in the Pro Forma Statement;
however, for purposes of such letter they have:
(A) read the Pro Forma Statement;
(B) made inquiries of certain officials of the
Company who have responsibility for financial and
accounting matters about the basis for their
determination of the pro forma adjustments and whether
the Pro Forma Statement above complies in form in all
material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X; and
(C) proved the arithmetic accuracy of the
application of the pro forma adjustments to the
historical amounts in the Pro Forma Statement; and on
the basis of such procedures, and such other inquiries
and procedures as may be specified in such letter,
nothing came to their attention that caused them to
believe that the Pro Forma Statement included in the
Registration Statement does not comply in form in all
material respects with the applicable requirements of
Rule 11-02 of Regulation S-X and that the pro forma
adjustments have not been properly applied to the
historical amounts in the compilation of that
statement; and
(v) in addition to the procedures referred to in
clause (ii) above, they have performed other specified
procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement, which
have previously been specified by you and which shall be
specified in such letter, and have compared certain of such
items with, and have found such items to be in agreement
with, the accounting and financial records of the Company.
(i) At the Closing Time, you shall have received from KPMG
Peat Marwick a letter, in form and substance reasonably
satisfactory to you and dated as of the Closing Time, to the
effect that they reaffirm the statements made in the letter
furnished pursuant to Section 5(h), except that the specified
date referred to shall be a date not more than five days prior to
the Closing Time.
(j) At the Closing Time, counsel for the Underwriters shall
have been furnished with all such documents, certificates and
opinions as they may request for the purpose of enabling them to
<PAGE>
35
pass upon the sale of the Shares as contemplated in the Purchase
Agreements and the matters referred to in Section 5(g) and in
order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company and the
Selling Stockholders, the performance of any of the covenants of
the Company, or the fulfillment of any of the conditions herein
contained; and all proceedings taken by the Company and the
Selling Stockholders at or prior to the Closing Time in
connection with the sale of the Shares as contemplated in the
Purchase Agreements shall be satisfactory in form and substance
to you and to counsel for the Underwriters.
(k) The "lock-up" letters which are substantially in the
form of Exhibit B attached hereto from (a) each executive officer
or director of the Company and (b) each stockholder of the
Company who (i) owns at least 1% of the outstanding shares of
Common Stock and (ii) who is a party to the Registration Rights
Agreement (as defined in the Prospectuses) have been delivered to
you on or before the date hereof.
If any of the conditions specified in this Section 5
shall not have been fulfilled when and as required by this
Agreement, this Agreement may be terminated by you on notice to
the Company, Equitable and any of the Attorneys-in-Fact on behalf
of the Selling Stockholders at any time at or prior to the
Closing Time, and such termination shall be without liability of
any party to any other party, except as provided in Section 4.
Notwithstanding any such termination, the provisions of
Sections 7 and 8 herein shall remain in effect.
Section 6. Conditions to Purchase of International
---------------------------------------
Option Shares. In the event that the Managers exercise their
-------------
option granted in Section 2 hereof to purchase all or any of the
International Option Shares and the Date of Delivery determined
by you pursuant to Section 2 hereof is later than the Closing
Time, the obligations of the several Managers to purchase and pay
for the International Option Shares that they shall have
respectively agreed to purchase pursuant to this Agreement are
subject to the accuracy of the representations and warranties of
the Company and the Selling Stockholders herein contained, to the
performance by the Company and the Selling Stockholders of their
obligations hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective at
the Date of Delivery, and, at the Date of Delivery, no stop order
suspending the effectiveness of the Registration Statement shall
have been issued under the 1933 Act and no proceedings for that
purpose shall have been instituted or shall be pending or, to
your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any request on the part of
the Commission for additional information shall have been
<PAGE>
36
complied with to the satisfaction of counsel for the
Underwriters.
(b) At the Date of Delivery, the provisions of
Sections 5(f)(i) through 5(f)(v) shall have been complied with at
and as of the Date of Delivery and, at the Date of Delivery, you
shall have received a certificate of the President or a Vice
President, and the Treasurer or the Senior Vice
President/Finance, of the Company (each in their capacity as an
officer of the Company and not as an individual), dated as of the
Date of Delivery, to such effect.
(c) At the Date of Delivery, you shall have received the
favorable opinions of Skadden, Arps, Slate, Meagher & Flom,
special counsel for the Company, James M. Santo, Esq., Senior
Vice President/Administration for the Company, Skadden, Arps,
Slate, Meagher & Flom, counsel for certain of the Selling
Stockholders and Solovay and Edlin, P.C., counsel for certain of
the Selling Stockholders, together with signed or reproduced
copies of such opinions for each of the other Managers, in each
case in form and substance reasonably satisfactory to counsel for
the Underwriters, dated as of the Date of Delivery, relating to
the International Option Shares and otherwise to the same effect
as the opinions required by Section 5(b), 5(c) or 5(d),
respectively.
(d) At the Date of Delivery, you shall have received the
favorable opinion of Shearman & Sterling, counsel for the
Underwriters, dated as of the Date of Delivery, relating to the
International Option Shares and otherwise to the same effect as
the opinion required by Section 5(f).
(e) At the Date of Delivery, you shall have received a
letter from KPMG Peat Marwick, in form and substance reasonably
satisfactory to you and dated as of the Date of Delivery, to the
effect that they reaffirm the statements made in the letter
furnished pursuant to Section 5(i), except that the specified
date referred to shall be a date not more than five days prior to
the Date of Delivery.
(f) At the Date of Delivery, you shall have received from
each of the Selling Stockholders (or on their behalf)
certificates substantially in the form of the certificates
furnished to you pursuant to Section 5(h), except that such
certificates shall be as of the Date of Delivery.
(g) At the Date of Delivery, counsel for the Underwriters
shall have been furnished with all such documents, certificates
and opinions as they may reasonably request for the purpose of
enabling them to pass upon the sale of the Option Shares as
contemplated in the Purchase Agreements and the matters referred
to in Section 6(d) and in order to evidence the accuracy and
<PAGE>
37
completeness of any of the representations, warranties or
statements of the Company or the Selling Stockholders, the
performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all
proceedings taken by the Company and the Selling Stockholders at
or prior to the Date of Delivery in connection with the sale of
the Option Shares as contemplated in the Purchase Agreements
shall be satisfactory in form and substance to you and to counsel
for the Underwriters.
(h) At the Date of Delivery, the representations and
warranties of each Selling Stockholder set forth in Section 1(b)
hereof shall be accurate as though expressly made at and as of
the Date of Delivery.
Section 7. Indemnification. (a) The Company and each
---------------
Selling Stockholder that is a Merrill Lynch Investor (as defined
in the Prospectuses, each an "ML Seller" and collectively, the
"ML Sellers") jointly and severally agree to indemnify and hold
harmless each Manager and each person, if any, who controls any
Manager within the meaning of Section 15 of the 1933 Act to the
extent and in the manner set forth in clauses (i), (ii) and (iii)
below. In addition, each Selling Stockholder (other than the ML
Sellers, whose responsibilities shall be governed by the
foregoing sentence), severally and not jointly (but only with
respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Registration Statement (or
any amendment thereto) or any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished by such
Selling Stockholder expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectuses (or any amendment or supplement
thereto) a copy of which shall have been previously delivered to
you, agrees to indemnify and hold harmless each Manager and each
person, if any, who controls any Manager within the meaning of
Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of an
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, if
applicable, and all documents incorporated therein by
reference, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out
of an untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the
Prospectuses (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material
<PAGE>
38
fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made,
not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such
settlement is effected with the written consent of the
Company and the Selling Stockholders; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 7 (c) hereof,
reasonable fees and disbursements of counsel chosen by you),
reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or
any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement does not apply
-------- -------
to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity
with written information furnished to the Company by any U.S.
Underwriter or Manager through you expressly for use in the
Registration Statement (or any amendment thereto), including the
Rule 430A Information, if applicable, or any preliminary
prospectus or the Prospectuses (or any amendment or supplement
thereto); provided further that the foregoing indemnification
-------- -------
with respect to any preliminary prospectus shall not inure to the
benefit of any Manager (or any person controlling such Manager)
from whom the person asserting any such losses, claims, damages
or liabilities purchased any of the International Shares if a
copy of the Prospectuses (as then amended or supplemented if the
Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Manager to
such person, if such is required by law, at or prior to the
written confirmation of the sale of such Shares to such person
and if the Prospectuses (as so amended or supplemented) would
have cured the defect giving rise to such loss, claim, damage or
liability; and provided further that the liability of a Selling
----------------
Stockholder (including any ML Seller) pursuant to this Section 7
is limited to the amount of the net proceeds of the offering of
the International Shares (after deducting the underwriting
discount, but before deducting expenses) received by such Selling
Stockholder.
<PAGE>
39
Insofar as this indemnity agreement may permit
indemnification for liabilities under the 1933 Act of any person
who is a partner of a Manager or who controls a Manager within
the meaning of Section 15 of the 1933 Act and who, at the date of
this Agreement, is a director or officer of the Company or
controls the Company within the meaning of Section 15 of the 1933
Act, such indemnity agreement is subject to the undertaking of
the Company in the Registration Statement under Item 17 thereof.
(b) Each Manager severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who
signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the
1933 Act and each Selling Stockholder and each person, if any,
who controls any Selling Stockholder within the meaning of
Section 15 of the 1933 Act, against any and all loss, liability,
claim, damage and expense described in the indemnity agreement in
Section 7(a), as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment
thereto), including the Rule 430A Information, if applicable, or
any preliminary prospectus or the Prospectuses (or any amendment
or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such Manager
through you expressly for use in the Registration Statement (or
any amendment thereto), including the Rule 430A Information, if
applicable, or such preliminary prospectus or the Prospectuses
(or any amendment or supplement thereto).
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect
of which indemnity may be sought hereunder, but failure to so
notify an indemnifying party shall not relieve it from any
liability which it may have otherwise than on account of this
indemnity agreement. An indemnifying party may participate at
its own expense in the defense of such action. In no event shall
the indemnifying party or parties be liable for the fees and
expenses of more than one counsel for all indemnified parties in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances. If it so elects within a
reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such
notice, may assume the defense of such action with counsel chosen
by it and approved by the indemnified parties defendant in such
action, unless such indemnified parties reasonably object to such
assumption on the ground that there may be legal defenses
available to them which are different from or are in addition to
those available to such indemnifying party. If an indemnifying
party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of counsel
<PAGE>
40
for the indemnified parties incurred thereafter in connection
with such action.
Section 8. Contribution. In order to provide for just
------------
and equitable contribution in circumstances under which the
indemnity provided for in Section 7 is for any reason held to be
unenforceable by the indemnified parties although applicable in
accordance with its terms, the Company, the Selling Stockholders
and the Managers shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature
contemplated by such indemnity incurred by the Company, the
Selling Stockholders and one or more of the Managers, as
incurred, in such proportions that (a) the Managers are
responsible for that portion represented by the percentage that
the underwriting discount appearing on the cover page of the
International Prospectus bears to the offering price appearing
thereon and (b) the Company, and the Selling Stockholders are
severally responsible for the balance on the same basis as each
of them would have been obligated to provide indemnification
pursuant to Section 7; provided, however, that no person guilty
-------- -------
of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section, each person, if
any, who controls a Manager within the meaning of Section 15 of
the 1933 Act shall have the same rights to contribution as such
Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person,
if any, who controls the Company or a Selling Stockholder within
the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company or a Selling Stockholder,
as the case may be.
Section 9. Representations, Warranties and Agreements
------------------------------------------
to Survive Delivery. The representations, warranties,
-------------------
indemnities, agreements and other statements of the Selling
Stockholders and the Company or its officers set forth in or made
pursuant to the Purchase Agreements will remain operative and in
full force and effect regardless of any investigation made by or
on behalf of the Selling Stockholders, the Company, any Manager
or any person who controls a Selling Stockholder, the Company or
any Manager within the meaning of Section 15 of the 1933 Act and
will survive delivery of and payment for the International
Shares.
Section 10. Termination of Agreement. (a) You may
------------------------
terminate this Agreement, by notice to the Company, Equitable and
any of the Attorneys-in-Fact, at any time at or prior to the
Closing Time (i) if there has been, since the respective dates as
of which information is given in the Registration Statement, any
material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of
<PAGE>
41
the Company and the Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the
financial markets in the United States or any outbreak of
hostilities or escalation thereof or other calamity or crisis the
effect of which on the financial markets of the United States is
such as to make it, in your reasonable judgment, impracticable to
market the International Shares or enforce contracts for the sale
of the International Shares or (iii) if trading in any securities
of the Company has been suspended by the Commission or the New
York Stock Exchange, or if trading generally on either the
American Stock Exchange or the New York Stock Exchange or in the
over-the-counter market has been suspended, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices
for securities have been required, by such exchanges or by order
of the Commission or the New York Stock Exchange or any other
governmental authority or (iv) if a banking moratorium has been
declared by either federal, Florida or New York authorities.
(b) If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party
to any other party, except to the extent provided in Section 4.
Notwithstanding any such termination, the provisions of
Sections 7 and 8 shall remain in effect.
(c) This Agreement may also terminate pursuant to the
provisions of Section 2, with the effect stated in such Section.
(d) This Agreement may also terminate if the U.S. Purchase
Agreement is terminated in accordance with terms thereof.
Section 11. Default by One or More of the Managers.
--------------------------------------
If one or more of the Managers shall fail at the Closing Time to
purchase the Initial International Shares that it or they are
obligated to purchase pursuant to this Agreement (the "Defaulted
International Shares"), you shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the
non-defaulting Managers, or any other managers, to purchase all,
but not less than all, of the Defaulted International Shares in
such amounts as may be agreed upon and upon the terms set forth
in this Agreement; if, however, you have not completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted International Shares does
not exceed 10% of the total number of Initial International
Shares, the non-defaulting Managers shall be obligated to
purchase the full amount thereof in the proportions that their
respective Initial Share Underwriting Commitments bear to the
Underwriting Commitments of all non-defaulting Managers, or
(b) if the number of Defaulted International Shares exceeds
10% of the total number of Initial International Shares, this
<PAGE>
42
Agreement shall terminate without liability on the part of any
non-defaulting Manager.
No action taken pursuant to this Section shall relieve
any defaulting Manager from liability in respect of its default.
In the event of any such default that does not result
in a termination of this Agreement, either you or the Company
shall have the right to postpone the Closing Time for a period
not exceeding seven days in order to effect any required changes
in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term "Manager"
includes any person substituted for a Manager under this
Section 11.
Section 12. Default by a Selling Stockholder. If any
--------------------------------
Selling Stockholder shall fail at the Closing Time to sell and
deliver the number of Initial International Shares that such
Selling Stockholder is obligated to sell, then the Managers may,
at your option, by notice from you to the Company and any of the
Attorneys-in-Fact, either (a) terminate this Agreement without
any liability on the part of any non-defaulting party except to
the extent provided in Section 4 and except that the provisions
of Sections 7 and 8 shall remain in effect or (b) elect to
purchase the Initial International Shares that the remaining
Selling Stockholders have agreed to sell pursuant to this
Agreement.
In the event of a default under this Section that does
not result in the termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Time
for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses
or in any other documents or arrangements.
No action taken pursuant to this Section shall relieve
any Selling Stockholder so defaulting from liability, if any, in
respect of such default.
Section 13. Notices. All notices and other
-------
communications under the Purchase Agreements shall be in writing
and shall be deemed to have been duly given if delivered, mailed
or transmitted by any standard form of telecommunication.
Notices to you or the Managers shall be directed to you, c/o
Mrs. Lindsay Hincks, Merrill Lynch International Limited,
Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, England;
notices to the Company shall be directed to it at 8333 Bryan
Dairy Road, Largo, Florida, 34647, Attention: James M. Santo,
Esq., Senior Vice President/Administration with copies to
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New
York, New York 10022, Attention: Stacy J. Kanter, Esq.;
notices to the Selling Stockholders (other than Equitable) shall
<PAGE>
43
be directed to any of the Attorneys-in-Fact c/o Eckerd
Corporation, 8333 Bryan Dairy Road, Largo, Florida, 34647;
notices to Equitable shall be directed to them at 787 7th
Avenue, Floor 37K, Attention: Georgette Schaefer, Esq.; a copy
of all notices to any Selling Stockholder shall be provided to
Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New
York, New York 10022, Attention: Stacy J. Kanter, Esq. and
Solovay & Edlin, P.C., 560 Lexington Avenue, New York, New York
10022, Attention: Michael Solovay, Esq.
Section 14. Parties. This Agreement is made solely
-------
for the benefit of the several Managers, the Company and the
Selling Stockholders and, to the extent expressed, any person
who controls the Company, any Selling Stockholder or any of the
Managers within the meaning of Section 15 of the 1933 Act, and
the directors of the Company, its officers who have signed the
Registration Statement, and their respective executors,
administrators, successors and assigns and, subject to the
provisions of Section 11, no other person shall acquire or have
any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as
such purchaser, from any of the several Managers of the
International Shares. All of the obligations of the Managers
hereunder are several and not joint.
Section 15. Representation of Managers. You will act
--------------------------
for the several Managers in connection with the transactions
contemplated by this Agreement, and any action under or in
respect of this Agreement taken by you as Co-Lead Managers will
be binding upon all Managers.
Section 16. Governing Law and Time. This Agreement
----------------------
shall be governed by the laws of the State of New York.
Specified times of the day refer to New York City time.
Section 17. Counterparts. This Agreement may be
------------
executed in one or more counterparts and when a counterpart has
been executed by each party, all such counterparts taken
together shall constitute one and the same agreement.
----------------------------------------
<PAGE>
44
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us a
counterpart hereof, whereupon this instrument will become a
binding agreement among the Company, the Selling Stockholders
and the several Managers in accordance with its terms.
Very truly yours,
ECKERD CORPORATION
By
-------------------------------
Name:
Title:
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By
--------------------------------
Name:
Title:
THE EQUITABLE LIFE ASSURANCE
COMPANY OF THE UNITED STATES
By
--------------------------------
Name:
Title:
<PAGE>
45
THE OTHER SELLING STOCKHOLDERS
NAMED IN SCHEDULE B
By
------------------------------
Attorney-in-Fact
Confirmed and accepted as of
the date first above written:
Merrill Lynch International Limited
Bear, Stearns International Limited
Morgan Stanley & Co. International Limited
Raymond James & Associates, Inc.
By: Merrill Lynch International Limited
By
-----------------------
Name:
Title:
Investment Banking Group
For themselves and as Co-Lead Managers of the
---------------------------------------------
other Managers named in Schedule A.
-----------------------------------
<PAGE>
EXHIBIT A
Eckerd Corporation
(a Delaware corporation)
1,000,000 Shares of Common Stock
INTERNATIONAL PRICE DETERMINATION AGREEMENT
, 1994
-------------------------
Merrill Lynch International Limited
Bear, Stearns International Limited
Morgan Stanley & Co. International Limited
Raymond James & Associates, Inc.
As Co-Lead Managers
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen :
Reference is made to the International Purchase
Agreement dated _____1994 (the "International Purchase
Agreement") among Eckerd Corporation (the "Company"), the Selling
Stockholders named in Schedule B thereto or hereto (the "Selling
Stockholders") and the several Managers named in Schedule A
thereto or hereto (the "Managers"), for whom Merrill Lynch
International Limited, Bear, Stearns International Limited,
Morgan Stanley & Co. International Limited, Raymond James &
Associates, Inc. are acting as co-lead managers (the "Co-Lead
Managers"). The International Purchase Agreement provides for
the purchase by the Managers from the Selling Stockholders,
subject to the terms and conditions set forth therein, of an
aggregate of 1,000,000 shares (the "International Shares") of the
Company's common stock, par value $ 0.01 per share. This
Agreement is the International Price Determination Agreement
referred to in the International Purchase Agreement.
Pursuant to Section 2 of the International Purchase
Agreement, the undersigned agree with the Co-Lead Managers as
follows:
<PAGE>
2
1. The price to public per share for the International
Shares shall
be $___.
2. The purchase price per share for the International
Shares to be paid by the several Managers shall be
$ , representing an amount equal to the purchase
----------------
price set forth above, less $______per share.
The Company represents and warrants to each of the
Managers that the representations and warranties of the Company
set forth in Section 1(a) of the International Purchase Agreement
are accurate as though expressly made at and as of the date
hereof.
The Selling Stockholders represent and warrant to each
of the Managers that the representations and warranties of the
Selling Stockholders set forth in Section 1(b) of the
International Purchase Agreement are accurate as though expressly
made at and as of the date hereof.
As contemplated by Section 2 of the International
Purchase Agreement, attached as Schedule A is a completed list of
the several Managers and as Schedule B is a completed list of the
Selling Stockholders, which shall be a part of this Agreement and
the International Purchase Agreement.
This Agreement shall be governed by the laws of the
State of New York.
------------------------------------------
<PAGE>
3
If the foregoing is in accordance with the
understanding of the Co-Lead Managers of the agreement between
the Managers, the Company and the Selling Stockholders, please
sign and return to the Company a counterpart hereof, whereupon
this instrument along with all counterparts and together with the
International Purchase Agreement shall be a binding agreement
between the Managers, the Company and the Selling Stockholders in
accordance with its terms and the terms of the International
Purchase Agreement.
Very truly yours,
ECKERD CORPORATION
By
---------------------------------
Name:
Title:
EQUITABLE VARIABLE LIFE
INSURANCE COMPANY
By
---------------------------------
Name:
Title:
THE EQUITABLE LIFE ASSURANCE
COMPANY OF THE UNITED STATES
By
---------------------------------
Name:
Title:
<PAGE>
4
THE OTHER SELLING STOCKHOLDERS
NAMED IN SCHEDULE B
By
---------------------------------
Attorney-in-Fact
Confirmed and accepted as of
the date first above written:
Merrill Lynch International Limited
Bear, Stearns International Limited
Morgan Stanley & Co. International Limited
Raymond James & Associates, Inc.
By : Merrill Lynch International Limited
By
------------------------------
Name:
Title:
Investment Banking Group
For themselves and as Co-Lead Managers of the
---------------------------------------------
other Managers named in Schedule A
----------------------------------
<PAGE>
SCHEDULE A
Number of
Managers Initial
-------- -------
International Shares
--------------------
Merrill Lynch, International Limited .
Bear, Stearns International Limited . .
Morgan Stanley & Co. International
Limited . . . . . . . . . . . . . . . .
Raymond James & Associates, Inc. . . .
---------------
Total 1,000,000
=========
<PAGE>
SCHEDULE B
Number of Number of
Initial International
International Option
Selling Stockholder Shares Shares
-------------------- ------ ------
Merrill Lynch Capital
Appreciation Partnership
No. II, L.P. 354,766 52,213
Merrill Lynch Capital
Appreciation Partnership
No. B-IX, L.P. 48,811 7,322
Merrill Lynch Interfunding,
Inc. 34,014 5,102
ML IBK Positions, Inc. 59,044 8,857
ML Offshore LBO Partnership
No. B-IX 28,591 4,289
ML Offshore LBO Partnership
No. II 9,020 1,353
ML Employees LBO Partnership
No. I, L.P. 8,819 1,323
Merrill Lynch KECALP L.P.
1989 8,824 1,324
Merrill Lynch KECALP L.P.
1986 6,500 975
Merchant Banking L.P. No. IV 3,066 460
MLCP Associates L.P. No. II 774 116
Equitable Variable Life
Insurance Company 10,907 1,636
The Equitable Life Assurance
Society of the United States 98,162 14,724
J.P. Morgan Capital
Corporation 108,205 16,231
Northwestern Mutual Life
Insurance Company 52,649 7,897
American Home Assurance
Company 80,025 12,004
CBC Capital Partners 53,200 7,980
Wells Fargo & Company 24,439 3,666
First Bank System 4,968 745
Monarch Life Insurance
Company 4,810 772
Sears Pension Trust 406 61
---------- ---------
Total........................... 1,000,000 150,000
========== =========
<PAGE>
SCHEDULE C
List of the Subsidiaries
------------------------
Clorwood Distributors, Inc., a Florida corporation.
Eckerd Consumer Products, Inc., a Florida corporation.
Eckerd Fleet, Inc., a Florida corporation.
Eckerd Holdings II, Inc., a Delaware corporation.
Eckerd's Westbank, Inc., a Louisiana corporation.
Eckerd Tobacco Company, Inc., a Florida corporation.
E.I.T., Inc., a Florida corporation.
Insta-Care Holdings, Inc., a Florida corporation.
Insta-Care Pharmacy Services Corporation, a Texas corporation.
P.C.V., Inc., a Florida corporation.
Pharmacy Dynamics Group, Inc., a Florida corporation.
E.T.B., Inc., a Texas corporation (49% owned)
EXHIBIT 23.3
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
AND REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
ECKERD CORPORATION AND SUBSIDIARIES:
The audits referred to in our report dated March 18, 1994 included the
related financial statement schedules as of January 29, 1994 and January 30,
1993, and the fiscal years ended January 29, 1994, January 30, 1993 and February
1, 1992 included in the Registration Statement. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits. In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We consent to the use of our audit reports included herein, and on the
consolidated financial statements and related financial statement schedules of
Eckerd Corporation and Subsidiaries included in its Annual Report on Form 10-K
as of January 29, 1994 and January 30, 1993, and the fiscal years ended January
29, 1994, January 30, 1993 and February 1, 1992, as amended by its Annual
Report on form 10-K/A for such periods, incorporated by reference, and
to the reference to this Firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK
TAMPA, FLORIDA
APRIL 20, 1994
