AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 17, 1995
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
ECKERD CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3302437
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
</TABLE>
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)
ROBERT E. LEWIS, ESQ.
VICE PRESIDENT/GENERAL COUNSEL
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:
<TABLE>
<S> <C>
STACY J. KANTER, ESQ. MARK KESSEL, 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
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this 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: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock ($.01 par value)...... 2,875,000 shares $42.75 $122,906,250 $24,582
</TABLE>
(1) Includes 375,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rules 457(a) and 457(c) under the Securities Act of 1933, the
registration fee applicable to the Common Stock is calculated upon the basis
of the average high and low sales prices of the Common Stock as reported on
the New York Stock Exchange Composite Tape on November 13, 1995.
-------------------
<PAGE>
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>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 17, 1995
PROSPECTUS
2,500,000 SHARES
[LOGO]
COMMON STOCK
-------------------
All of the 2,500,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of Eckerd Corporation (the "Company") offered hereby (the
"Offering") are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of shares of Common Stock offered hereby.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
trading symbol "ECK." On November 16, 1995, the last reported sale price of the
Common Stock on the NYSE was $43 5/8 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" COMMENCING ON PAGE 8.
-------------------
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 Underwriters against certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) The Company has agreed to pay certain expenses of the Offering estimated at
$450,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an aggregate of 375,000 additional shares of Common Stock,
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, 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 the shares of Common Stock will be made in New York, New York on or
about , 1995.
-------------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
-------------------
The date of this Prospectus is , 1995.
<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 OF ECKERD DRUG STORES BY STATE ]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY 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.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK OF THE COMPANY PURSUANT TO EXEMPTIONS
FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
<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 Eckerd Corporation and its subsidiaries. All
references to fiscal years shall be determined with respect to the calendar year
in which the fiscal year begins. The Company's fiscal year terminates each year
on the Saturday nearest to January 31st. Unless the context indicates otherwise,
the information contained in this Prospectus assumes that the over-allotment
option granted by the Selling Stockholders to the Underwriters has not been
exercised.
THE COMPANY
Eckerd Corporation (the "Company") operates the Eckerd Drug store chain,
which is one of the largest drug store chains in the United States. At October
28, 1995, the Eckerd Drug store chain consisted of 1,704 stores in 13 states
located primarily in the Sunbelt, including 577 stores in Florida and 474 stores
in Texas. The Company's stores are concentrated in 10 of the 12 metropolitan
statistical areas in the United States with the largest percentage growth in
population from 1980 to 1990, and, according to industry sources, the Company
ranks first or second in 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 1994, the Company filled more than 89
million prescriptions, and sales of prescriptions and over-the-counter drugs
generated approximately 61.1% of the Company's drug store sales and other
operating revenue. During the period from fiscal 1990 through fiscal 1994, the
Company's dollar volume of sales of prescription drugs increased at a compound
annual growth rate of 12.4% and during the first half of fiscal 1995, the dollar
volume of sales of prescription drugs increased by 15.8% as compared to the
first half of fiscal 1994. The Company expects that its prescription and
over-the-counter drug business will provide significant opportunities for
profitable growth primarily as a result of the continued shift to managed health
care in the United States and the aging of the American population.
The Company believes it is well positioned to take advantage of the growth
in managed health care. The Company's extensive store base within its markets,
strong third-party payor marketing program, state-of-the-art pharmacy computer
systems, and experience and reputation in the industry provide the Company with
distinct advantages over independent drug stores, small drug store chains and
mass merchandisers in attracting third-party payor sales. In fiscal 1994, sales
to third-party payors, such as insurance companies, health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"), other managed
care providers, government agencies or private employers, represented
approximately 64.6% of the Company's total prescription drug sales, as compared
to 36.0% in fiscal 1990, and this percentage is expected to continue to
increase.
The Company also expects to benefit from the aging of the population, as
approximately 62% of the Company's drug stores are located in Florida and Texas,
two of the top three states in terms of 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.
In addition to prescription and over-the-counter drugs, the Company also
sells a wide variety of name brand and private label nonpharmacy merchandise,
including health and beauty aids, greeting cards and other convenience products,
such as sundries, tobacco, books, magazines, household products, seasonal
merchandise and toys. Over the last several years, the Company has introduced
convenience food mart sections in over 550 stores, offering beverages and other
convenience food items. The Company plans to add food mart departments to over
350 stores in fiscal 1995. The Company is also a leading source of photo
finishing in all of the major markets in which it operates, offering overnight
3
<PAGE>
developing in all of its stores and 1-hour Express Photo service in 510 of its
locations as of October 28, 1995. The Company is one of the top three vertically
integrated retail photo finishers in the United States. The Company believes
that photo finishing operations increase store traffic and provide for
significant incremental sales of other drug store items. The Company anticipates
opening additional Express Photo Centers over the next several years in both new
and existing store locations, with a goal of adding approximately 240 new
Express Photo Centers by 1999.
Customer service and convenience are critical in positioning the Company as
an alternative to mass merchandisers, supermarkets and other large format
retailing channels. The Company typically provides several conveniently located,
modern stores in a community. The Company's stores range in size from 8,200 to
10,800 square feet and are primarily located in high-traffic neighborhood strip
centers or free standing locations. The Company's stores are typically open
every day of the year except Christmas, with some open until midnight or 24
hours a day. The Company offers a high level of professional pharmacy service
such as the "Rx Advisor", a personalized, easy-to-read publication provided to
each prescription drug customer which advises the customer of the specific
dosages, contraindications and side effects of his or her prescription medicine.
Other customer service advantages include comfortable pharmacy waiting areas,
free health-related programs and screenings (e.g., blood pressure tests) and
drive-through pharmacy windows in most new drug stores. In addition, the Company
frequently tests new customer service features.
The Company's business strategy is focused upon maintaining a strong
pharmacy and health-related business. The Company plans to continue to implement
this strategy by:
. maintaining a high level of customer service and convenience;
. providing competitive prices on its merchandise;
. maintaining an aggressive marketing program to third-party payors;
. continuing its commitment to control costs;
. improving store productivity and profitability by continuing to assess the
need to reallocate nonpharmacy shelf space;
. expanding and improving the Company's store base; and
. continuing to invest in and upgrade information systems.
The Company was incorporated in Delaware in 1985 and acquired the former
Jack Eckerd Corporation ("Old Eckerd") in 1986 (the "Acquisition"). The
Company's principal executive offices are located at 8333 Bryan Dairy Road,
Largo, Florida 34647; telephone number (813) 399-6000.
4
<PAGE>
THE OFFERING
Common Stock Offered by the
Selling Stockholders......... 2,500,000 shares
Total Common Stock
Outstanding.................. 34,950,857 shares (1)
NYSE Symbol.................... ECK
- ------------
(1) Based on the number of shares outstanding as of October 28, 1995. Does not
include employee stock options outstanding to purchase an aggregate of
1,656,199 shares of Common Stock at October 28, 1995, of which options to
purchase an aggregate of 302,328 shares of Common Stock were exercisable. In
addition, another 1,757,910 shares of Common Stock were reserved for
issuance pursuant to the Company's 1993 and 1995 Stock Option and Incentive
Plans.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical financial data for the years and periods
presented below have been derived from the Company's consolidated financial
statements. The historical financial data for the three fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993 have been derived from,
and should be read in conjunction with, the Company's audited consolidated
financial statements and related notes contained in the Company's Annual Report
on Form 10-K405 (the "Annual Report") incorporated by reference herein. The
historical financial data for the twenty-six week periods ended July 29, 1995
and July 30, 1994 have been derived from, and should be read in conjunction
with, the unaudited consolidated financial statements of the Company contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (the "10-Q") incorporated by reference herein which, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the interim period financial
data. The results for the twenty-six week period ended July 29, 1995 are not
necessarily indicative of the results to be expected for the full year. The
summary pro forma statement of operations data presented below give effect to
the Insta-Care Sale (as defined) and the use of the net proceeds therefrom as if
such transaction had occurred as of the beginning of the periods presented and
for the fiscal year ended January 28, 1995 also reflect the reversal of the gain
on the Insta-Care Sale and the charge for future store closings and should be
read in conjunction with "Pro Forma Financial Data." The summary pro forma
financial data do not purport to represent what the Company's results of
operations would actually have been if the Insta-Care Sale 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 incorporated by reference herein.
<TABLE><CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
----------------------- --------------------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other operating
revenue(1)....................... $2,358,318 $2,203,085 $4,549,031 $4,190,539 $3,887,027 $3,739,852 $3,456,134
Gross profit(2).................... 533,722 516,721 1,104,890 1,015,164 990,548 1,001,307 928,590
Earnings before interest expense... 91,299 83,108 180,819 157,184 135,383 147,098 111,327
Total interest expense............. 39,949 48,392 93,735 113,215 137,404 143,194 147,309
Earnings (loss) before
extraordinary items.............. 42,620 32,966 78,331 41,413 (4,885) 977 (35,982)
Net earnings (loss) for the
period(3)........................ 41,599 32,966 47,808 (2,941) (4,123) 2,657 (35,982)
Net earnings (loss) available to
common shares(3)................. 41,599 32,966 47,808 (7,865) (14,938) (8,166) (46,848)
Earnings (loss) before
extraordinary items per common
share(4)....................... $ 1.30 $ 1.02 $ 2.41 $ 1.24 $ (0.59) $ (0.38) $ (1.97)
Net earnings (loss) per common
share(3)(4).................... 1.27 1.02 1.47 (0.27) (0.56) (0.32) (1.97)
Weighted average common shares
outstanding...................... 32,855,056 32,235,137 32,431,719 29,392,805 26,573,902 25,677,103 23,793,496
OTHER OPERATING DATA:
EBITDA(5).......................... $ 130,860 $ 120,401 $ 258,613 $ 242,844 $ 229,217 $ 248,677 $ 235,687
EBITDA Margin(6)................... 5.5% 5.5% 5.7% 5.8% 5.9% 6.6% 6.8%
LIFO charge(7)..................... $ 5,992 $ 4,841 $ 10,750 $ 8,500 $ 15,000 $ 21,000 $ 23,000
Depreciation....................... 23,889 21,515 45,842 50,041 53,753 49,554 47,835
Amortization of intangibles and
expenses related to Acquisition
and other(8)................... 15,672 15,778 31,952 35,619 40,081 52,025 77,925
Capital expenditures............... 40,169 21,739 57,246 39,327 51,389 49,410 73,243
DRUG STORE DATA:
Drug stores open at end of
period........................... 1,666 1,714 1,735 1,718 1,696 1,675 1,673
Comparable drug store sales
growth........................... 8.8% 8.0% 8.1% 6.1% 3.1% 5.7% 6.9%
Average sales per drug store....... $ 1,383 $ 1,252 $ 2,561 $ 2,365 $ 2,222 $ 2,142 $ 2,036
Average sales per selling floor
square foot...................... 182 159 325 302 283 272 258
Prescription sales as a percentage
of drug store sales and other
operating revenue................ 53.3% 50.5% 50.8% 48.3% 45.4% 44.0% 42.6%
Prescription and over-the-counter
sales as a percentage of drug
store sales and other operating
revenue........................ 63.7% 60.9% 61.1% 59.0% 55.9% 54.7% 52.8%
Third-party prescription sales as a
percentage of prescription
sales.......................... 69.4% 63.2% 64.6% 58.0% 49.6% 43.1% 36.0%
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
JULY 30, 1994 JAN. 28, 1995
---------------------- -----------------
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:(9)(10)
Total interest expense(11)................................................ $ 44,125 $ 86,987
Earnings before extraordinary items....................................... 34,375 80,395
Net earnings for the period............................................... 34,375 49,872
Net earnings available to common shares................................... 34,375 49,872
Earnings before extraordinary items per common share...................... 1.07 2.48
Net earnings per common share............................................. 1.07 1.54
Weighted average common shares outstanding................................ 32,235,137 32,431,719
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 29, 1995
-----------------------------
ACTUAL AS ADJUSTED(12)
---------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................... $ 335,524 $ 353,484
Total assets........................................................................ 1,344,216 1,406,177
Long-term debt (including current installments)..................................... 790,558 776,237
Stockholders' equity (deficit)...................................................... (80,533) (3,225)
</TABLE>
(Footnotes on following page)
6
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Reflects reclassification of sales to employees in the twenty-six weeks
ended July 30, 1994 to conform to fiscal 1995 financial statement
presentation. Fiscal 1994, 1993, 1992, 1991 and 1990 have not been
reclassified.
(2) Gross profit represents sales and other operating revenue less cost of
sales, including store occupancy, warehousing and delivery expense.
(3) Reflects extraordinary item of $762 in fiscal 1992 and $1,680 in fiscal
1991 relating to the tax effect of utilization of net operating loss
carryforwards and extraordinary loss net of taxes of $1,021 in the
twenty-six weeks ended July 29, 1995 and $30,523 in fiscal 1994 relating to
the early retirement of indebtedness and $44,354 in fiscal 1993 relating to
the early retirement of indebtedness and preferred stock.
(4) Reflects payment of preferred stock dividends of $4,924 in fiscal 1993,
$10,815 in fiscal 1992, $10,823 in fiscal 1991 and $10,866 in fiscal 1990.
(5) EBITDA means earnings before interest, taxes, depreciation, amortization of
intangibles and expenses related to the Acquisition and other, and, for
fiscal 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 an important 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 1990 is before the reversal of the inventory
valuation reserve established in fiscal 1986 in connection with the
Acquisition.
(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.
(9) The pro forma statement of operations data reflect the Insta-Care Sale and
the use of the net proceeds as if such transaction had occurred as of the
beginning of the periods presented. See "The Company--The 1994
Transactions--The Insta-Care Sale" and "Pro Forma Financial Data."
(10) For the fiscal year ended January 28, 1995, excludes $54,125 from sales and
other operating revenue for the gain on the Insta-Care Sale, $4,655 from
income taxes for the gain on the Insta-Care Sale and $48,988 from operating
and administrative expenses for the charge for future store closings.
(11) Pro forma interest expense was computed assuming a rate of 6 1/2% under the
Credit Agreement.
(12) The as adjusted balance sheet data reflect the use of the net proceeds of
approximately $82.3 million from the August Offering (as defined under "The
Company--The 1995 Transactions") which was completed on August 2, 1995.
Such net proceeds, together with approximately $59.4 million of Revolving
Loan (as defined) borrowings under the Credit Agreement (as defined under
"Description of Certain Indebtedness--The Credit Agreement") were used to
redeem all of the Company's 11 1/8% Subordinated Debentures due 2001 (the
"11 1/8% Debentures") and to finance the Florida Acquisition (as defined
under "The Company--The 1995 Transactions").
7
<PAGE>
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 July 29, 1995, the Company had
long-term debt (including current maturities) of $790.6 million and a
stockholders' deficit of $80.5 million. The Company may incur additional
indebtedness in the future, including (i) unused and available borrowing
commitments under the revolving credit facility portion of the Credit Agreement
of $198.7 million on July 29, 1995 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 Company's 9
1/4% Senior Subordinated Notes due 2004 (the "9 1/4% Notes") and the Company's
other debt instruments. See "--Restrictions Imposed by Terms of the Company's
Indebtedness." As of October 28, 1995, the Company had borrowed an additional
$99.0 million of Revolving Loan borrowings under 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 9 1/4% 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 9 1/4% Notes contain certain restrictions on the Company's ability to
sell assets and on the use of proceeds from permitted asset sales. For
information regarding restrictions on debt refinancing and asset dispositions,
see "Description of Certain Indebtedness."
While certain transactions consummated in fiscal 1993 and 1994, such as the
IPO (as defined), the issuance of the 9 1/4% Notes and amendments to the Credit
Agreement, and certain transactions consummated in fiscal 1995, such as the
August Offering, have improved the Company's financial flexibility, and while a
proposed amendment to the Credit Agreement (the "1995 Credit Agreement
Amendment"), if completed, will further improve the Company's financial
flexibility, the substantial interest and principal payment requirements on
borrowings under the Credit Agreement, the 9 1/4% Notes and the Company's other
indebtedness could have important consequences to holders of Common Stock. See
"Description of Certain Indebtedness--The Credit Agreement." Such consequences
include (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 9 1/4% Notes and
certain other financing agreements impose other operating and financial
restrictions on the Company, the failure to comply
8
<PAGE>
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 October 28, 1995, the Company had
$573.2 million of borrowings under the Credit Agreement 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."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the Credit Agreement and the 9 1/4% Notes
Indenture (as defined herein) 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 "Description of
Certain Indebtedness--The 9 1/4% 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, the
9 1/4% Notes Indenture and other indebtedness of the Company. In the event of
any such default, 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 or the 9 1/4% Notes 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. See "Description of Certain Indebtedness--The
Credit Agreement."
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. See "Business--Business Strategy--Competitive Pricing"
and "Business--Business Strategy--Competition."
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 53.3%, 50.8%, 48.3%, 45.4%, 44.0% and 42.6% of the Company's drug
store sales and other operating revenue for the first half of fiscal 1995,
fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991 and fiscal 1990,
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
9
<PAGE>
changes relating to the approval process for prescription drugs. In recent
years, an increasing number of legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the health care system, either nationally or at the state level. The
Company cannot predict whether any federal or state health care reform
legislation will eventually be passed, and if so, 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 may 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 future federal or state health care reform legislation will not adversely
affect the Company or the retail drug store industry generally. See
"Business--Regulation."
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 69.4%,
64.6%, 58.0%, 49.6%, 43.1% and 36.0% of the Company's prescription sales in the
first half of fiscal 1995, fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991
and fiscal 1990, 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 the first half of fiscal 1995 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."
PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, the Merrill Lynch Investors (as defined
under "The Company-- General") will own approximately 15.80% of the outstanding
shares of Common Stock (approximately 14.72% if the over-allotment option is
exercised in full) and the Management Investors (as defined under "The
Company--General") will own approximately 3.27% 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 will be able
to influence significantly the election of the Board of Directors of the Company
and the vote on all other matters requiring stockholder approval. The Merrill
Lynch Investors are affiliates of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). 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 Offering, approximately 34,950,857 shares of Common
Stock will be outstanding. All of the 2,500,000 shares of Common Stock being
sold in the Offering, together with approximately 22,424,938 shares currently
outstanding, will be freely transferable without restriction under the
Securities Act unless held by an affiliate of the Company. The remaining
outstanding shares of Common Stock held by existing stockholders are "restricted
securities" of the Company within the
10
<PAGE>
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 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 has included the shares of
Common Stock to be sold by the Selling Stockholders in the Offering pursuant to
the exercise by such 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 (the "1% Holders")
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 or exercisable for Common Stock, or any rights
or warrants to acquire Common Stock, subject to certain exceptions, without the
prior written consent of the Representatives (as defined herein) of the
Underwriters. Approximately 23.22% of the shares of Common Stock outstanding
upon consummation of the Offering will be subject to such lock-up agreement. In
addition, it is anticipated that certain of the Merrill Lynch Investors that are
limited partnerships will be distributing shares of Common Stock owned by them
to their partners that have elected not to receive their pro rata share
of the proceeds of the sale of Common Stock by such partnerships (the "Merrill
Lynch Distribution"). The Merrill Lynch Investors do not expect that the number
of shares to be so distributed will exceed 400,000. As a condition to receiving
shares of Common Stock in the Merrill Lynch Distribution, such partners have
agreed to be bound by the same lock-up provision as the 1% Holders for a
period of 120 days after the effective date of the Registration Statement. The
Merrill Lynch Distribution is expected to occur as soon as practicable after 120
days from the effective date of the Registration Statement, or on such earlier
date consented to by the Representatives of the Underwriters. 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, 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, subject to certain exceptions,
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, or the perception that such sales
could occur, could adversely affect prevailing market prices of the Common
Stock.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
29, 1995 and as adjusted to give effect to the issuance of 2,675,000 shares of
Common Stock by the Company in the August Offering and the use of the net
proceeds therefrom. The table should be read in conjunction with "Pro Forma
Financial Data" and the Company's consolidated financial statements incorporated
by reference herein. The Company will not receive any of the proceeds from the
sale of the shares of Common Stock in the Offering.
<TABLE>
<CAPTION>
JULY 29, 1995
---------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total long-term indebtedness (including current installments):
Credit Agreement
Term Loans................................................... $ 415,280 $415,280
Revolving Loans and Bankers' Acceptances..................... 59,000 118,423
9 1/4% Notes..................................................... 200,000 200,000
11 1/8% Debentures ($78,860 principal amount).................... 73,744 --
Variable rate demand industrial revenue bonds.................... 18,250 18,250
Other (principally notes secured by fixtures and equipment)...... 24,284 24,284
--------- --------------
Total long-term indebtedness (including current
installments)............................................ 790,558 776,237
Stockholders' equity (deficit):
Common stock................................................... 322 349
Capital in excess of par value................................. 234,636 316,931
Retained deficit............................................... (315,491) (320,505)(2)
--------- --------------
Total common stockholders' equity (deficit)................ (80,533) (3,225)
--------- --------------
Total capitalization............................................. $ 710,025 $773,012
--------- --------------
--------- --------------
</TABLE>
- ------------
(1) Reflects the use of the net proceeds of approximately $82,322 from the
August Offering and additional Revolving Loan borrowings of approximately
$59,423 to redeem all of the 11 1/8% Debentures on September 5, 1995 and to
finance the Florida Acquisition. The Company will not receive any of the
proceeds from the sale of the shares of Common Stock in the Offering.
(2) Reflects the write-off of original issue discount and deferred debt expense
of $6,040 ($5,014 on an after-tax basis) related to the redemption on
September 5, 1995 of the 11 1/8% Debentures.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange ("NYSE") 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
on the NYSE Composite Tape. The Common Stock was not publicly traded, and no
dividends were paid on the Common Stock, prior to the IPO on August 5, 1993.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------
HIGH LOW
--------------- -------------
<S> <C> <C>
FISCAL 1993:
Third Quarter (from August 6, 1993)...................................... $18 $12 3/4
Fourth Quarter........................................................... 20 3/4 13 3/4
FISCAL 1994:
First Quarter............................................................ $24 $18 1/2
Second Quarter........................................................... 25 1/4 18 1/8
Third Quarter............................................................ 31 1/2 23 1/4
Fourth Quarter........................................................... 32 25 3/8
FISCAL 1995:
First Quarter............................................................ $30 1/4 $24 1/2
Second Quarter........................................................... 34 5/8 28 3/8
Third Quarter............................................................ 42 32 5/8
Fourth Quarter (through November 16, 1995)............................... 44 1/2 38 1/8
</TABLE>
On November 16, 1995, the last sale price as reported on the NYSE was
$43.625 per share.
The Company has never paid dividends on its Common Stock and does not intend
to pay dividends in 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 9 1/4% Notes. 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>
THE COMPANY
GENERAL
Merrill Lynch Capital Partners, Inc. ("Merrill Lynch Capital Partners")
formed the Company for the purpose of acquiring Old Eckerd in April 1986. Prior
to the Acquisition, the Company had no activities other than those connected to
the Acquisition. Merrill Lynch Capital Partners formed EDS Holdings Inc. ("EDS")
and its wholly owned subsidiary, Eckerd Holdings II, Inc. ("EH II"), to acquire
certain additional drug stores in July 1990. EH II owns certain drug stores
which were operated by the Company 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. The
stockholders of the Company include (i) certain partnerships affiliated with
Merrill Lynch Capital Partners, (ii) certain other affiliates of Merrill Lynch &
Co., Inc. ("ML & Co.") ((i) and (ii), collectively, the "Merrill Lynch
Investors" or the "Selling Stockholders"), (iii) approximately 25 members of
current and former 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 October 28, 1995, the Merrill Lynch Investors owned
approximately 8,020,634 shares, or 22.95%, of the Common Stock, and the
Management Investors owned approximately 1,168,505 shares, or 3.27%, of the
Common Stock. Upon completion of the Offering, the Merrill Lynch Investors will
own approximately 15.80% of the outstanding shares of Common Stock
(approximately 14.72% if the over-allotment option is exercised in full). The
Management Investors are not selling any shares of Common Stock in the Offering.
See "Principal and Selling Stockholders."
THE 1993 TRANSACTIONS
The Refinancing
On June 15, 1993, the Company consummated a series of transactions designed
to simplify its capital structure, reduce interest expense and dividend costs
and provide additional financial flexibility. The Company entered into the Old
Credit Agreement (as defined), which provided for (a) a $650.0 million term loan
facility 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 was
available as a swingline loan facility and as a letter of credit and bankers'
acceptance facility). 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, the Company, EDS and EH II amended the EH II Management Agreement to
provide for the payment by EH II to the Company 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 Old 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").
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 of
July 13, 1990, as amended, with
14
<PAGE>
Morgan Guaranty Trust Company of New York and the other lenders party thereto
(the "1990 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 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 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 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 at a redemption price
of 106.6% of the principal amount thereof, (vi) the Company's Discount
Subordinated Debentures due May 1, 2006 (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 issuance of the 9 1/4%
Notes) and (vii) the Company's 14 1/2% Cumulative Redeemable Preferred Stock
(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
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 and certain of the
Management Investors) 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 certain
specified rates, (ii) a 2-for-3 reverse 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." The Company used
approximately $30.0 million of the net proceeds of the IPO to repay all
borrowings outstanding under the EH II Credit Agreement and the balance to repay
borrowings under the Old Credit Agreement consisting of Tranche A Term Loans of
$27.5 million and Tranche B Term Loans of $8.3 million.
The 9 1/4% Note Issuance
On November 2, 1993, the Company consummated the sale (the "9 1/4% Note
Issuance") of $200.0 million aggregate principal amount of the 9 1/4% Notes. The
net proceeds from the 9 1/4% 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 Refinancing, the IPO and the 9 1/4% Note Issuance are collectively
referred to herein as the "1993 Transactions."
THE 1994 TRANSACTIONS
The Vision Group Sale
Effective January 30, 1994, the Company sold its operations of Eckerd
Optical centers and "Visionworks" retail optical superstores (the "Vision Group
Sale"). The Company sold the Vision Group for an amount in cash and notes
approximately equal to the book value of the related assets and no gain or loss
was recognized by the Company. The net proceeds from the Vision Group Sale were
used to reduce outstanding indebtedness under the Credit Agreement. 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,
taxes and extraordinary items.
15
<PAGE>
The Amendment
On August 3, 1994, the Company completed an amendment (the "Amendment") to
its then existing credit agreement (the "Old Credit Agreement" and, as amended
and restated pursuant to the Amendment, the "Credit Agreement"). The Amendment
did not provide any additional proceeds to the Company, but it did provide
improved pricing and increased operating flexibility with respect to
acquisitions, capital expenditures and lease payments, with future reductions in
rates if the Company achieves certain indebtedness levels and performance goals.
The Insta-Care Sale
On November 15, 1994, the Company consummated the sale of Insta-Care
Holdings, Inc. ("Insta-Care") to Pharmacy Corporation of America, a subsidiary
of Beverly Enterprises, Inc., for a total consideration of $112.0 million in
cash (the "Insta-Care Sale"). Insta-Care provided prescription drugs as well as
patient record and consulting services to long-term health care facilities in
New England and the Sunbelt. The net proceeds from the Insta-Care Sale, after
certain closing adjustments, were approximately $93.3 million. Such net proceeds
were used to redeem $50.0 million aggregate principal amount of 11 1/8%
Debentures in December 1994 and to repay approximately $43.3 million of
Revolving Loan borrowings under the Credit Agreement in November 1994. In fiscal
1994, sales of Insta-Care were approximately $89.0 million and earnings before
interest and income taxes were approximately $3.0 million, accounting for
approximately 2.0% of the Company's sales and 1.6% of the Company's earnings
before interest, taxes and extraordinary items. The Company recognized a gain on
the Insta-Care Sale of $49.5 million, net of income taxes of $4.6 million.
The Vision Group Sale, the Amendment and the Insta-Care Sale are
collectively referred to herein as the "1994 Transactions."
THE 1995 TRANSACTIONS
The August Offering and Florida Acquisition
On August 2, 1995, the Company consummated a public offering of 6,175,500
shares of Common Stock in the aggregate at a public offering price of $32.25 per
share (the "August Offering"). Of the shares offered, 2,675,000 shares were sold
by the Company and 3,500,500 shares were sold by the Merrill Lynch Investors.
The Company used the net proceeds of the August Offering, approximately $82.3
million, and approximately $59.4 million of Revolving Loan borrowings under the
Credit Agreement (i) to redeem all of the outstanding 11 1/8% Debentures at a
redemption price of 100% of the $78.86 million principal amount thereof and (ii)
to finance the acquisition (the "Florida Acquisition") of the assets of 108 drug
stores in Florida that were formerly owned and operated by Rite Aid of Florida,
Inc. ("Rite Aid"). Pursuant to the Florida Acquisition, the Company acquired 40
Rite Aid leased locations, which are currently being operated as Eckerd Drug
stores and the fixtures, inventory and prescription files of an additional 68
Rite Aid locations.
The 1995 Credit Agreement Amendment
In addition, the Company is currently negotiating an amendment to the Credit
Agreement (the "1995 Credit Agreement Amendment") which will, among other
things, decrease the interest rate payable by the Company on borrowings. The
Company expects that the closing of the 1995 Credit Agreement Amendment will
occur by the end of November 1995. For a description of the proposed terms of
the 1995 Credit Agreement Amendment, see "Description of Certain
Indebtedness--The Credit Agreement--Terms and Conditions of the Proposed
Amendment and Restatement of the Credit Agreement."
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the years and periods
presented below have been derived from the Company's consolidated financial
statements. The selected historical financial data for the three fiscal years
ended January 28, 1995, January 29, 1994 and January 30, 1993 have been derived
from, and should be read in conjunction with, the Company's audited consolidated
financial statements and related notes contained in the Annual Report
incorporated by reference herein. The historical financial data for the
twenty-six week periods ended July 29, 1995 and July 30, 1994 have been derived
from, and should be read in conjunction with, the unaudited consolidated
financial statements of the Company contained in the 10-Q incorporated by
reference herein which, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the interim period financial data. The results for the
twenty-six week period ended July 29, 1995 are not necessarily indicative of the
results to be expected for the full year. 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 incorporated by reference
herein.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
----------------------- --------------------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other operating
revenue(1)........................ $2,358,318 $2,203,085 $4,549,031 $4,190,539 $3,887,027 $3,739,852 $3,456,134
Cost of sales, including store
occupancy, warehousing and
delivery expense................ 1,824,596 1,686,364 3,444,141 3,175,375 2,896,479 2,738,545 2,527,544
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit(2)..................... 533,722 516,721 1,104,890 1,015,164 990,548 1,001,307 928,590
Operating and administrative
expense........................... 442,423 433,613 924,071 857,980 855,165 854,209 817,263
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before interest expense.... 91,299 83,108 180,819 157,184 135,383 147,098 111,327
Total interest expense.............. 39,949 48,392 93,735 113,215 137,404 143,194 147,309
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes
and extraordinary items........... 51,350 34,716 87,084 43,969 (2,021) 3,904 (35,982)
Income tax provision................ 8,730 1,750 8,753 2,556 2,864 2,927 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before extraordinary
items............................. 42,620 32,966 78,331 41,413 (4,885) 977 (35,982)
Extraordinary item--early retirement
of debt and preferred stock, net
of tax benefit.................... (1,021) -- (30,523) (44,354) -- -- --
Extraordinary item--tax effect of
utilization
of net operating loss
carryforward...................... -- -- -- -- 762 1,680 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) for the
period(3)......................... $ 41,599 $ 32,966 $ 47,808 $ (2,941) $ (4,123) $ 2,657 $ (35,982)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) available to
common shares(3).................. $ 41,599 $ 32,966 $ 47,808 $ (7,865) $ (14,938) $ (8,166) $ (46,848)
Earnings (loss) before extraordinary
items per common share(4)......... $ 1.30 $ 1.02 $ 2.41 $ 1.24 $ (0.59) $ (0.38) $ (1.97)
Net earnings (loss) per common
share(3)(4)....................... 1.27 1.02 1.47 (0.27) (0.56) (0.32) (1.97)
Weighted average common shares
outstanding....................... 32,855,056 32,235,137 32,431,719 29,392,805 26,573,902 25,677,103 23,793,496
OTHER OPERATING DATA:
EBITDA(5)........................... $ 130,860 $ 120,401 $ 258,613 $ 242,844 $ 229,217 $ 248,677 $ 235,687
EBITDA Margin(6).................... 5.5% 5.5% 5.7% 5.8% 5.9% 6.6% 6.8%
LIFO charge(7)...................... $ 5,992 $ 4,841 $ 10,750 $ 8,500 $ 15,000 $ 21,000 $ 23,000
Depreciation........................ 23,889 21,515 45,842 50,041 53,753 49,554 47,835
Amortization of intangibles and
expenses related to Acquisition
and other(8)...................... 15,672 15,778 31,952 35,619 40,081 52,025 77,925
Capital expenditures................ 40,169 21,739 57,246 39,327 51,389 49,410 73,243
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
----------------------- --------------------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
DRUG STORE DATA:
Drug Stores open at end of period... 1,666 1,714 1,735 1,718 1,696 1,675 1,673
Comparable drug store sales
growth............................ 8.8% 8.0% 8.1% 6.1% 3.1% 5.7% 6.9%
Average sales per drug store........ $ 1,383 $ 1,252 $ 2,561 $ 2,365 $ 2,222 $ 2,142 $ 2,036
Average sales per selling floor
square foot....................... 182 159 325 302 283 272 258
Prescription sales as a percentage
of drug store sales and other
operating revenue................. 53.3% 50.5% 50.8% 48.3% 45.4% 44.0% 42.6%
Prescription and over-the-counter
sales as a percentage of drug
store sales and other operating
revenue........................... 63.7% 60.9% 61.1% 59.0% 55.9% 54.7% 52.8%
Third-party prescription sales as a
percentage of prescription
sales............................. 69.4% 63.2% 64.6% 58.0% 49.6% 43.1% 36.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------------------------------
JULY 29, 1995
---------------------------
ACTUAL AS ADJUSTED(9) JAN. 28, 1995 JAN. 29, 1994 JAN. 30, 1993 FEB.1, 1992
---------- -------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 335,524 $ 353,484 $ 280,289 $ 306,588 $ 367,027 $ 328,617
Total assets.................... 1,344,216 1,406,177 1,342,347 1,420,137 1,418,922 1,412,249
Long-term debt (including
current installments)......... 790,558 776,237 787,013 954,891 1,048,222 1,023,106
Preferred stock................. -- -- -- -- 75,000 75,000
Stockholders' equity
(deficit)..................... (80,533) (3,225) (122,742) (179,022) (243,291) (228,353)
<CAPTION>
FEB. 2, 1991
------------
<S> <C>
BALANCE SHEET DATA:
Working capital................. $ 347,775
Total assets.................... 1,443,167
Long-term debt (including
current installments)......... 1,084,088
Preferred stock................. 75,000
Stockholders' equity
(deficit)..................... (220,187)
</TABLE>
- ------------
(1) Reflects reclassification of sales to employees in the twenty-six weeks
ended July 30, 1994 to conform to fiscal 1995 financial statement
presentation. Fiscal 1994, 1993, 1992, 1991 and 1990 have not been
reclassified.
(2) Gross profit represents sales and other operating revenue less cost of
sales, including store occupancy, warehousing and delivery expense.
(3) Reflects extraordinary item of $762 in fiscal 1992 and $1,680 in fiscal 1991
relating to the tax effect of utilization of net operating loss
carryforwards and extraordinary loss net of taxes of $1,021 in the
twenty-six weeks ended July 29, 1995 and $30,523 in fiscal 1994 relating to
the early retirement of indebtedness and $44,354 in fiscal 1993 relating to
the early retirement of indebtedness and preferred stock.
(4) Reflects payment of preferred stock dividends of $4,924 in fiscal 1993,
$10,815 in fiscal 1992, $10,823 in fiscal 1991 and $10,866 in fiscal 1990.
(5) EBITDA means earnings before interest, taxes, depreciation, amortization of
intangibles and expenses related to the Acquisition and other, and, for
fiscal 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 an important 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 1990 is before the reversal of the inventory
valuation reserve established in fiscal 1986 in connection with the
Acquisition.
(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.
(9) The as adjusted balance sheet data reflect the use of the net proceeds of
approximately $82.3 million from the August Offering, which was completed on
August 2, 1995. Such net proceeds, together with approximately $59.4 million
of Revolving Loan borrowings under the Credit Agreement, were used to redeem
all of the 11 1/8% Debentures and to finance the Florida Acquisition.
18
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data of the Company are based on
the historical consolidated financial statements of the Company contained in the
Annual Report and 10-Q incorporated by reference herein, adjusted to give effect
to the Insta-Care Sale and the use of the net proceeds therefrom. The unaudited
pro forma statement of operations data for the fiscal year ended January 28,
1995 and the twenty-six weeks ended July 29, 1995 give effect to the Insta-Care
Sale and the use of the net proceeds therefrom as if such transactions had
occurred as of the beginning of the periods presented and for the fiscal year
ended January 28, 1995 also reflect the reversal of the gain on the Insta-Care
Sale and the charge for future store closings. The adjustments relating to the
Insta-Care Sale and the future store closings are described in the accompanying
footnotes. 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 do not purport to represent what the Company's results
of operations would actually have been if the Insta-Care Sale 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 incorporated by reference herein.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED JANUARY
JULY 29, 1995 JULY 30, 1994 28, 1995
-------------- ------------------------------------------- ---------------------------
ACTUAL ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS
-------------- ---------- ----------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales and other
operating revenue...... $2,358,318 $2,203,085(1) $ (55,711)(2) $2,147,374 $4,549,031(1) $ (88,663)(2)
(54,125)(3)
-------------- ---------- ----------- ---------- ---------- -----------
Costs and expenses:
Cost of sales,
including store
occupancy,
warehousing and
delivery expense.......... 1,824,596 1,686,364 (37,305)(2) 1,649,059 3,444,141 (58,766)(2)
Operating and
administrative
expenses............ 442,423 433,613 (15,608)(2) 418,005 924,071 (25,830)(2)
(48,988)(4)
-------------- ---------- ----------- ---------- ---------- -----------
Earnings before interest
expense................ 91,299 83,108 (2,798) 80,310 180,819 (9,204)
Interest expense:
Interest expense,
net................... 38,881 45,001 (4,049)(5) 40,952 87,838 (6,347)(5)
Amortization of
original issue
discount and deferred
debt expense......... 1,068 3,391 (218)(6) 3,173 5,897 (401)(6)
-------------- ---------- ----------- ---------- ---------- -----------
Total interest
expense............... 39,949 48,392 (4,267) 44,125 93,735 (6,748)
-------------- ---------- ----------- ---------- ---------- -----------
Earnings (loss) before
income taxes and
extraordinary item..... 51,350 34,716 1,469 36,185 87,084 (2,456)
Income tax provision..... 8,730 1,750 60 1,810 8,753 135
(4,655)(7)
-------------- ---------- ----------- ---------- ---------- -----------
Earnings (loss) before
extraordinary item...... 42,620 32,966 1,409 34,375 78,331 2,064
Extraordinary item--early
retirement of debt and
preferred stock........ (1,021) -- -- -- (30,523) --
-------------- ---------- ----------- ---------- ---------- -----------
Net earnings (loss) for
the period............. $ 41,599 $ 32,966 $ 1,409 $ 34,375 $ 47,808 $ 2,064
-------------- ---------- ----------- ---------- ---------- -----------
-------------- ---------- ----------- ---------- ---------- -----------
Net earnings (loss)
available to common
shares................. $ 41,599 $ 32,966 -- $ 34,375 $ 47,808 --
Earnings (loss) before
extraordinary items per
common share........... 1.30 1.02 -- 1.07 2.41 --
Net earnings (loss) per
common share........... 1.27 1.02 -- 1.07 1.47 --
Weighted average common
shares outstanding..... 32,855 32,235 -- 32,235 32,432 --
<CAPTION>
PRO FORMA
----------
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Sales and other
operating revenue...... $4,406,243
----------
Costs and expenses:
Cost of sales,
including store
occupancy,
warehousing and
delivery expense.......... 3,385,375
Operating and
administrative
expenses.................. 849,253
----------
Earnings before interest
expense................ 171,615
Interest expense:
Interest expense,
net.................. 81,491
Amortization of
original issue
discount and deferred
debt expense......... 5,496
----------
Total interest
expense.............. 86,987
----------
Earnings (loss) before
income taxes and
extraordinary item..... 84,628
Income tax provision..... 4,233
----------
Earnings (loss) before
extraordinary item...... 80,395
Extraordinary item--early
retirement of debt and
preferred stock...... (30,523)
----------
Net earnings (loss) for
the period............. $ 49,872
----------
----------
Net earnings (loss)
available to common
shares............... $ 49,872
Earnings (loss) before
extraordinary items per
common share.............. 2.48
Net earnings (loss) per
common share........... 1.54
Weighted average common
shares outstanding..... 32,432
</TABLE>
(Footnotes on following page)
19
<PAGE>
(Footnotes for preceding page)
------------
(1) Reflects an additional $18,355 for the twenty-six weeks ended July 30, 1994
in connection with the reclassification of sales to employees to conform to
fiscal 1995 financial statement presentation. Fiscal 1994 has not been
reclassified.
(2) Reflects exclusion of Insta-Care operations.
(3) Reflects reversal of $54,125 gain on the Insta-Care Sale.
(4) Reflects reversal of $48,988 charge for future store closings. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
(5) Reflects the redemption of $50,000 aggregate principal amount of 11 1/8%
Debentures and repayment of Revolving Loan borrowings under the Credit
Agreement of $43,300 from the net proceeds from the Insta-Care Sale, net of
income taxes of $4,655 paid from the gain on the Insta-Care Sale and the
corresponding reduction in interest expense.
(6) Reflects the reversal of original issue discount and deferred debt expenses
related to the redemption of $50,000 of 11 1/8% Debentures.
(7) Reflects reversal of $4,655 of income taxes related to the gain on the
Insta-Care Sale.
20
<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. Until they were sold effective
January 30, 1994 and November 15, 1994, respectively, the Company also derived
revenues from the operations of Vision Group and Insta-Care, which together
represented approximately 4.0% of the Company's sales and other operating
revenue in fiscal 1993. See "The Company--The 1994 Transactions." 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 incurred a significant amount of
charges which are non-cash and/or non-recurring. Therefore, the Company believes
that 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) is an important measure of its operating results.
The following table sets forth the Company's operating results excluding such
non-cash and non-recurring charges.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED FISCAL YEAR ENDED
------------------- ----------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before interest, taxes and
extraordinary items................... $ 91,299 $ 83,108 $180,819 $157,184 $135,383 $147,098 $111,327
Depreciation............................ 23,889 21,515 45,842 50,041 53,753 49,554 47,835
Amortization of asset write-ups,
including goodwill.................... 15,672 15,778 31,952 35,055 38,593 46,255 56,800
Charges due to performance related
programs.............................. -- -- -- -- 1,075 4,196 20,252
Reversal of inventory valuation
reserve............................... -- -- -- -- -- -- (1,400)
Other amortization...................... -- -- -- 564 413 1,574 873
-------- -------- -------- -------- -------- -------- --------
EBITDA.................................. $130,860 $120,401 $258,613 $242,844 $229,217 $248,677 $235,687
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</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, which were sold pursuant to the Vision Group Sale. 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, the Company 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
21
<PAGE>
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
1994............................................ 32.0
--------
$ 557.2
--------
--------
Most of such amortization is fully tax deductible. Amortization is expected to
be approximately $34.0 million in fiscal 1995.
Tax Net Operating Loss Carryforwards
As of January 28, 1995, the Company estimates that it had NOL carryforwards
of approximately $218.0 million for U.S. 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
years 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 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 approximately 2% of its AMTI. After the Company utilizes all
of its NOL carryforwards, its effective tax rate will increase. 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
In May 1992, the Company implemented a cost reduction program which, during
the three fiscal years ended January 28, 1995, January 29, 1994 and January 30,
1993, has eliminated operating expenses of over $80.0 million. The Company
continues 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 any 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 35.4%
of the Company's fiscal 1994 prescription sales and 30.6% in the first half of
fiscal 1995. 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.
22
<PAGE>
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."
Extraordinary Items and Non-Recurring Adjustments
The Company's financial results for fiscal 1994 reflect extraordinary items
in connection with the Amendment, as well as the early repayment of debt with a
portion of the net proceeds from the Insta-Care Sale, of $28.0 million ($26.6
million on an after-tax basis) and $4.1 million ($3.9 million on an after-tax
basis), respectively, which consisted of the write-off of deferred debt expenses
and original issue discount ("OID"). In addition, the fiscal 1994 financial
results also include non-recurring adjustments of $49.5 million (net of income
taxes of $4.6 million) for the gain on the Insta-Care Sale and $49.0 million for
the charge for future store closings.
The Company's financial results for the first half of fiscal 1995 reflect an
extraordinary item in connection with the early repayment of debt which reflects
the write-off of OID and deferred debt expense of $1.31 million ($1.02 million
on an after-tax basis) for the second quarter of fiscal 1995 related to the
redemption on May 12, 1995 of 11 1/8% Debentures.
For the third quarter of fiscal 1995, the Company's financial results will
reflect an extraordinary item in connection with the early repayment of debt
which reflects the write-off of OID and deferred debt expense of $5.96 million
($4.95 million on an after-tax basis) related to the redemption of the balance
of the 11 1/8% Debentures with a portion of the net proceeds from the August
Offering and the Revolving Loan borrowings. The Company also expects that the
financial results for the fourth quarter of fiscal 1995 will reflect an
extraordinary item in connection with the 1995 Credit Agreement Amendment of
approximately $3.8 million.
RESULTS OF OPERATIONS
The following table sets forth certain condensed consolidated statements of
operations data of the Company in dollars and as a percentage of sales and other
operating revenue for the periods indicated. The data for the twenty-six weeks
ended July 29, 1995 and for fiscal 1992 are presented on a historical basis, the
data for the twenty-six weeks ended July 30, 1994 and for fiscal 1994 are
presented on an adjusted basis and the data for fiscal 1993 are presented on
both an adjusted basis and a historical basis. The data for the twenty-six weeks
ended July 30, 1994 are adjusted to give pro forma effect to the Insta-Care Sale
and the use of proceeds therefrom and reflect the reclassification of sales to
employees to conform to fiscal 1995 financial statement presentation. The fiscal
1994 data are adjusted to exclude a pre-tax gain of $54.1 million (before income
taxes of $4.6 million) from the Insta-Care Sale and also to exclude a reserve of
$49.0 million for future store closings. The fiscal 1993 adjusted data exclude
the operations of Vision Group for the full fiscal year because it was sold
effective January 30, 1994, and exclude the operations of Insta-Care from
November 16, 1993 through January 29, 1994 because it was sold effective
November 15, 1994.
23
<PAGE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
------------------------------------- ---------------------------------------------------------
JULY 29, JULY 30, JANUARY 28, JANUARY 29, JANUARY 29,
1995 1994 1995 1994 1994
----------------- ----------------- ----------------- ----------------- -----------------
HISTORICAL ADJUSTED ADJUSTED ADJUSTED HISTORICAL
(DOLLARS IN THOUSANDS)
$ % $ % $ % $ % $ %
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other
operating revenue..... 2,358,318 100.0 2,147,374 100.0 4,494,906 100.0 4,108,683 100.0 4,190,539 100.0
Cost of sales and
related expenses...... 1,824,596 77.4 1,649,059 76.8 3,444,141 76.6 3,123,899 76.0 3,175,375 75.8
Gross profit............ 533,722 22.6 498,315 23.2 1,050,765 23.4 984,784 24.0 1,015,164 24.2
Operating and
administrative
expenses................ 442,423 18.8 418,005 19.5 875,083 19.5 829,654 20.2 857,980 20.5
Operating and
administrative
expenses, excluding
amortization of asset
write-ups resulting
from the acquisition
and related expenses... 426,751 18.1 402,393 18.7 843,131 18.8 794,267 19.3 822,361 19.6
Earnings before interest
and taxes.............. 91,299 3.9 80,310 3.7 175,682 3.9 155,130 3.8 157,184 3.8
Total interest
expense................ 39,949 1.7 44,125 2.1 93,735 2.1 113,215 2.8 113,215 2.7
Earnings (loss) before
income taxes and
extraordinary item...... 51,350 2.2 36,185 1.7 81,947 1.8 41,915 1.0 43,969 1.0
Net earnings (loss)..... 41,599 1.8 34,375 1.6 47,326 1.1 (4,995) (.1) (2,941) (.1)
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
EBITDA.................. 130,860 5.5 116,680 5.4 253,476 5.6 237,512 5.8 242,844 5.8
<CAPTION>
JANUARY 30,
1993
-----------------
HISTORICAL
$ %
--------- -----
<S> <C> <C>
Sales and other
operating revenue....... 3,887,027 100.0
Cost of sales and
related expenses........ 2,896,479 74.5
Gross profit............ 990,548 25.5
Operating and
administrative
expenses................ 855,165 22.0
Operating and
administrative
expenses, excluding
amortization of asset
write-ups resulting
from the acquisition
and related expenses... 816,159 21.0
Earnings before interest
and taxes.............. 135,383 3.5
Total interest
expense................. 137,404 3.5
Earnings (loss) before
income taxes and
extraordinary item..... (2,021) (.1)
Net earnings (loss)..... (4,123) (.1)
--------- -----
--------- -----
EBITDA.................. 229,217 5.9
</TABLE>
The following management's discussion and analysis is based on the
historical and as adjusted statements of operation data set forth in the above
table.
Twenty-Six Weeks Ended July 29, 1995 (historical)
compared with Twenty-Six Weeks Ended
July 30, 1994 (adjusted)
The Company's sales and other operating revenue for the first half of fiscal
1995 were $2,358.3 million, a 9.8% increase over the first half of fiscal 1994.
Comparable drug store sales (stores open for one year or more, excluding
relocated stores opened less than one year) increased 8.8% for the first half of
fiscal 1995, compared to an 8.0% increase for the first half of fiscal 1994.
Sales benefited from significant increases in prescription sales as well as by
increases in front end sales from strong Valentine and Easter selling seasons in
the first quarter and from a change in the promotional calendar in the second
quarter of fiscal 1995. Prescription sales for the first half of fiscal 1995
were $1,256.9 million, a 15.8% increase over the first half of fiscal 1994. In
addition, front end sales increased to $1,096.8 million, a 3.8% increase over
the first half of fiscal 1994. Front end sales in the first half of fiscal 1995
were positively affected primarily by increased sales of non-prescription items
in the health, greeting card, convenience food and photofinishing categories.
Prescription sales as a percentage of drug store sales and other operating
revenue was approximately 53.3% for the first half of fiscal 1995 as compared
with approximately 50.5% for the first half of fiscal 1994. The growth in
prescription sales for the first half was primarily the result of increased
third-party prescription sales and the Company's competitive cash pricing
strategy. These strong sales were aided by a more severe cough, cold and flu
season in the first quarter of fiscal 1995 compared to the first quarter of
fiscal 1994. Third-party prescription sales increased to approximately 69.4% of
the Company's prescription sales for the first half of fiscal 1995 from
approximately 63.2% in the first half of fiscal 1994. 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 1995
and for the foreseeable future. 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. However,
contracts with third-party payors generally increase the volume of prescription
sales and gross profit dollars. See "Business--The Drug Store Industry."
24
<PAGE>
Cost of sales and related expenses for the first half of fiscal 1995 were
$1,824.6 million, a 10.6% increase over the first half of fiscal 1994. As a
percentage of sales, cost of sales and related expenses were 77.4% compared to
76.8% for the first half of fiscal 1995 and 1994, respectively. The increase in
cost of sales and related expenses as a percentage of sales resulted primarily
from the continued increase in third-party prescription sales with typically
lower gross profit margins than non third-party prescription sales. The LIFO
charge was $6.0 million compared to $4.8 million for the first half of fiscal
1995 and 1994, respectively.
Operating and administrative expenses for the first half of fiscal 1995 were
$442.4 million, a 5.8% increase over the first half of fiscal 1994. As a
percentage of sales, operating and administrative expenses decreased to 18.8%
for the first half of fiscal 1995 from 19.5% for the first half of fiscal 1994.
The decrease in operating and administrative expenses as a percentage of sales
resulted primarily from operating efficiencies related to higher sales, and cost
controls which helped produce lower costs as a percentage of sales in such
expense categories as payroll and insurance. Non-cash tax deductible
amortization of intangibles included in operating and administrative expenses
for the first half of fiscal 1995 and the first half of 1994 were $15.7 million
and $15.6 million, respectively, an increase of 0.4%.
As a result of the above, earnings before interest expense and taxes and
extraordinary item increased 13.7% to $91.3 million, or 3.9% of sales, as
compared to 3.7 % of sales for the same period of the prior year.
Total interest expense was $39.9 million for the first half of fiscal 1995,
a decrease of 9.5% from the first half of fiscal 1994. The decrease was due
primarily to lower average borrowings in the first half of fiscal 1995 compared
to the first half of fiscal 1994. The average interest rate on borrowings in the
first half of fiscal 1995 and the first half of 1994 was substantially the same.
Income taxes for the first half of fiscal 1995 and the first half of 1994
were $8.7 million and $1.8 million, respectively. The effective income tax rate
of 17% in the first half of fiscal 1995 was higher than in the first half of
fiscal 1994 (5%). During the second quarter of fiscal 1995, income taxes were
adjusted to reflect the estimated 17% annual income tax rate. Income taxes
include alternative minimum and state income taxes for the Company and reflect
the utilization of net operating loss carryforwards.
As a result of the foregoing factors, the Company had net earnings before
extraordinary items for the first half of fiscal 1995 of $42.6 million, compared
to $34.4 million for the first half of fiscal 1994, an increase of $8.2 million
or 24.0%.
Fiscal Year 1994 (adjusted) compared with Fiscal Year 1993 (adjusted)
The Company's sales and other operating revenue for fiscal 1994 were $4.5
billion, a 9.4% increase over fiscal 1993. Comparable drug store sales (stores
open for one year or more) increased 8.1% during fiscal 1994 compared to a 6.1%
increase in fiscal 1993. Sales benefited from significant increases in drug
store prescription sales and increases in front end sales. For fiscal 1994,
prescription sales were $2.2 billion, a 15.2% increase over fiscal 1993. In
addition, drug store front end sales increased to $2.2 billion, a 4.2% increase
over fiscal 1993.
Prescription sales as a percentage of drug store sales and other operating
revenue was 50.8% for fiscal 1994 compared with 48.3% for fiscal 1993. The
growth in prescription sales was primarily the result of increased third-party
prescription sales and the Company's competitive cash pricing strategy. These
sales were strong despite a lower incidence of cough and cold/flu virus during
the first and fourth quarters of fiscal 1994 compared to fiscal 1993.
Third-party prescription sales represented 64.6% and 58.0% of the Company's
prescription sales in fiscal 1994 and 1993, respectively.
Cost of sales and related expenses in fiscal 1994 were $3.4 billion, a 10.2%
increase over fiscal 1993. As a percentage of sales, cost of sales and related
expenses were 76.6% and 76.0% for fiscal 1994 and 1993, respectively. The
increase in cost of sales and related expenses as a percentage of sales resulted
25
<PAGE>
primarily from the continued increase in third-party prescription sales with
typically lower gross profit margins than non third-party prescription sales.
The LIFO charge was $10.8 million in fiscal 1994 compared to $8.5 million in
fiscal 1993.
Operating and administrative expenses in fiscal 1994 were $875.1 million, a
5.5% increase over fiscal 1993. As a percentage of sales, operating and
administrative expenses were reduced to 19.5% for fiscal 1994 from 20.2% for
fiscal 1993. The decrease in operating and administrative expenses in fiscal
1994 as a percentage of sales resulted primarily from the economies of scale
related to the higher sales, and cost controls which helped produce lower costs
as a percentage of sales in such expense categories as payroll, insurance and
supplies. Additionally, non-cash tax deductible amortization of intangibles
included in operating and administrative expenses for fiscal 1994 and 1993 were
$31.9 million and $35.4 million, respectively, a decrease of 9.9%.
In the fourth quarter of fiscal 1994, the Company decided to accelerate the
closing of approximately 90 geographically dispersed, under-performing stores
over the following twelve to eighteen months, and established a $49.0 million
reserve for future store closings. These closings are in addition to the
relatively small number of stores the Company closes in the normal course of
business. The $49.0 million reserve includes approximately $27.0 million for
lease settlements and obligations, approximately $4.0 million for severance and
other expenses directly related to the store closings, and approximately $18.0
million for the write-off of impaired assets which include inventory liquidation
and the write-off of intangible and fixed assets.
As a result of the above, earnings before interest expense and income taxes
increased 13.2% to $175.7 million, or 3.9% of sales, as compared to 3.8% of
sales for the same period of the prior year.
Total interest expense was $93.7 million in fiscal 1994, a decrease of 17.2%
from fiscal 1993. The decrease was due primarily to the lower cost of debt to
the Company resulting from the 1993 Transactions and the Amendment which
provided improved pricing. In addition, the decrease in interest expense was due
to lower average borrowings in fiscal 1994, due primarily to repayments of
borrowings from net proceeds from the sale of Vision Group and Insta-Care
operations, partially offset by the numerous marketplace interest rate increases
during fiscal 1994. Amortization of original issue discount and deferred debt
expenses decreased to $5.9 million in fiscal 1994 from $7.2 million in fiscal
1993 resulting from the refinancing and early retirement of certain debt issues
in fiscal 1994 and 1993.
Income tax expense was $4.1 million and $2.6 million in fiscal 1994 and
1993, respectively. Income tax expense in both fiscal years represents
alternative minimum tax and state income taxes for the Company, and reflects the
utilization of net operating loss carryforwards.
As a result of the foregoing factors, the Company had earnings on an
adjusted basis before extraordinary items of $77.8 million in fiscal 1994
compared to $39.4 million in fiscal 1993, an increase of $38.4 million or 97.5%
and net income of $47.3 million in fiscal 1994 compared to a net loss of $5.0
million in fiscal 1993, a $52.3 million increase.
The Company had extraordinary items of $30.5 million (net of tax benefit of
$1.6 million) and $44.4 million (net of tax benefit of $0.9 million) in fiscal
1994 and 1993, respectively. The extraordinary item in fiscal 1994 is primarily
from the write-off of deferred costs related to the Amendment of the Credit
Agreement, as well as from the early retirement of $50.0 million of the 11 1/8%
Debentures. The extraordinary item in fiscal 1993 is primarily from the
write-off of deferred costs from the early retirement of a portion of the 11
1/8% Debentures, all of the 13% Discount Debentures and the redemption of the 14
1/2% Preferred Stock.
Fiscal Year 1993 (historical) compared with Fiscal Year 1992 (historical)
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 were $4.191 billion, a 7.8%
26
<PAGE>
increase over fiscal 1992. Comparable drug store sales increased 6.1% during
fiscal 1993 compared to a 3.1% increase in fiscal 1992. The increase in sales
and other operating revenue was due primarily to a $245 million increase in
sales of prescription drugs.
Prescription sales as a percentage of drug store sales and other operating
revenue 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 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 were $3.175 billion, a
9.6% increase over fiscal 1992. As a percentage of sales, cost of sales and
related expenses were 75.8% 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 were $858.0 million, a
0.3% increase over fiscal 1992. As a percentage of sales, operating and
administrative expenses were reduced to 20.5% in fiscal 1993 from 22.0% for
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. Non-cash, tax deductible amortization of intangibles included in
operating and administrative expenses in fiscal 1993 and 1992 were $35.6 million
and $39.0 million, respectively, a decrease of 8.7%.
As a result of the above, earnings before interest expense and income taxes
increased 16.1% to $157.2 million, or 3.8% of sales, as compared to 3.5% of
sales for the same period of the prior year.
Total interest expense was $113.2 million in fiscal 1993, a decrease of
17.6% from fiscal 1992. The decrease was due primarily to lower interest rates
in the marketplace and lower cost of debt for the Company after the Refinancing
and the 9 1/4% Note Issuance and the consummation of the IPO on August 12, 1993.
The income tax provision for fiscal 1993 and 1992 was $2.6 million and $2.9
million, respectively. The income tax provision for fiscal 1993 and 1992
represents alternative minimum tax and state income taxes.
27
<PAGE>
As a result of the foregoing factors, the Company had earnings before
extraordinary items in fiscal 1993 of $41.4 million, compared with a loss of
$4.9 million in fiscal 1992, and a net loss in fiscal 1993 of $2.9 million
compared with a net loss of $4.1 million in fiscal 1992.
The Company had an extraordinary item of $44.4 million (net of an 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 Company's 14
1/2% Preferred Stock in connection with the Refinancing, the IPO and the 9 1/4%
Note Issuance. In fiscal 1992, the Company had an extraordinary item of $0.8
million which represented the tax effect of the utilization of the Company's net
operating loss carryforward.
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 and cold/flu
virus, 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 1994 and 1993 and for the first and second quarters of fiscal
1995. The data presented include all adjustments, consisting only of normal
recurring adjustments, that management considers necessary for a fair
presentation of the data shown:
(IN THOUSANDS)
FISCAL 1995
-------------------------
FIRST SECOND
QUARTER QUARTER
---------- ----------
Sales and other operating revenue...... $1,219,594 $1,138,724
Gross profit........................... 280,106 253,616
Net earnings (loss).................... 30,544 11,055
EBITDA................................. 79,052 51,808
<TABLE>
<CAPTION>
FISCAL 1994
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales and other operating revenue...... $1,126,806(1) $1,057,924(1) $ 1,061,704 $1,302,597 $4,549,031
Gross profit........................... 270,112 246,609 239,523 348,646 1,104,890
Net earnings (loss).................... 26,945 6,021 (26,015) 40,857 47,808
EBITDA................................. 70,544 49,795 44,147 94,127 258,613
</TABLE>
<TABLE>
<CAPTION>
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
Net earnings (loss).................... 17,820 (30,868) (11,558) 21,665 (2,941)
EBITDA................................. 74,433 52,005 34,725 81,681 242,844
</TABLE>
- ------------
(1) Does not reflect reclassification of sales to employees to conform to fiscal
1995 financial statement presentation. As reclassified, sales and other
operating revenue for the first and second quarters would equal $1,136,195
and $1,066,890, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At October 28, 1995, the Company had outstanding approximately $405.7
million under the Term Loans and $167.5 million of Revolving Loans under the
Credit Agreement and had $94.5 million available for Revolving Loan borrowings
under the Credit Agreement (which is net of $88.0 million of letters of credit).
Pursuant to the Credit Agreement, the Company is required to make scheduled
payments of the outstanding principal amount of Term Loans in the following
approximate amounts:
28
<PAGE>
$76.4 million in fiscal 1996; $76.4 million in fiscal 1997; $81.1 million in
fiscal 1998; $90.7 million in fiscal 1999; and $81.1 million in fiscal 2000.
Prepayments made pursuant to the Credit Agreement are applied pro rata among the
remaining scheduled principal payments. The Credit Agreement matures at the end
of July 2000. At July 29, 1995, the Company had excess availability under the
revolving loan facility portion of the Credit Agreement and accordingly was not
required to treat the required amortization repayments as current. The foregoing
prepayment schedule will be revised if the 1995 Credit Agreement Amendment is
executed. See "Description of Certain Indebtedness--The Credit Agreement."
On July 29, 1995 the Company had working capital of $335.5 million and a
current ratio of 1.7 to 1 compared to $280.3 million and 1.5 to 1 at January 28,
1995. Cash flow provided by operating activities increased $57.1 million to
$62.0 million for the first half of fiscal 1995 compared to $4.9 million for the
first half of fiscal 1994. This increase was due to higher earnings for the
first half of fiscal 1995 compared to the first half of fiscal 1994 and
primarily due to the higher than normal cash payments to merchandise vendors in
the first quarter of fiscal 1994, resulting in the reduction of accounts payable
from an abnormally high balance at January 29, 1994 primarily from the timing of
vendor payment due dates. This increase was offset partially by an increase in
receivables from third-party prescription sales in fiscal 1995.
Net cash from investing activities for the first half of fiscal 1995 and
1994 used $37.4 million and provided $3.8 million, respectively. Uses of cash
were principally for capital expenditures of $40.2 million and $21.7 million for
fiscal 1995 and 1994, respectively, for point-of-sale product scanning
equipment, additions to the Company's drug stores, and Express Photo units,
relocation of drug stores and improvements to existing stores. In addition, in
fiscal 1994, additions to property, plant and equipment were for the
installation of satellite communication equipment. In the first quarter of
fiscal 1994, a source of cash to the Company from investing activities was
provided by a partial payment for the sale of the Vision Group operations.
Capital improvements for fiscal 1995, including those to be acquired under a
deferred payment arrangement and through operating leases, which total $54.2
million for the first half of fiscal 1995, are expected to total approximately
$119.0 million on an annual basis. Funds for the cash capital expenditures are
expected to come from cash flow from operating activities and available
borrowings, if necessary.
Financing activities for the first half of fiscal 1995 used $23.8 million.
Uses of cash were primarily for the reduction of $26.5 million of bank debit
balances. Funds provided by $18.9 million of borrowings under the Credit
Agreement were primarily used to redeem $16.6 million aggregate principal amount
of 11 1/8% Debentures ($15.5 million accreted value) on May 12, 1995. Financing
activities for the first half of fiscal 1994 used $11.2 million primarily for
the reduction of $28.3 million of bank debit balances. Funds were provided by
$19.3 million of borrowings under the Credit Agreement.
On August 2, 1995, the Company completed the August Offering of 6,175,500
shares of Common Stock in the aggregate at a public offering price of $32.25 per
share. Of the shares offered, 2,675,000 shares were sold by the Company and
3,500,500 shares were sold by the Merrill Lynch Investors. The net proceeds to
the Company after the underwriting discount of $1.27 per share and other
expenses related to the August Offering was approximately $82.3 million in the
aggregate.
On September 5, 1995, the Company redeemed the remaining $78.9 million
aggregate principal amount of 11 1/8% Debentures ($73.8 million accreted value).
The Company anticipates that the combination of amortization of intangibles
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
expense 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 revolving loan facility portion
under the Credit Agreement and other existing sources, the Company
29
<PAGE>
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
business.
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 and the 9 1/4% Notes. 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 provides for postretirement benefits.
TAX NET OPERATING LOSS CARRYFORWARDS
While the Company estimates that it had approximately $218 million of NOL
carryforwards for U.S. federal income tax purposes as of January 28, 1995, it
also expects that a substantial portion of such NOL carryforwards will be
utilized to offset taxable income already generated during its current taxable
year. The remaining NOL carryforwards would expire in fiscal years 2002 to 2008
if not previously utilized. Although the Company expects that the Offering will
cause an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, which would cause an annual limitation on the utilization
of its remaining NOL carryforwards, the Company does not anticipate that, taking
into account the current market value of the Common Stock, such a limitation
would have a material effect on its U.S. federal income tax liability.
30
<PAGE>
BUSINESS
The Company operates the Eckerd Drug store chain, which is one of the
largest drug store chains in the United States. At October 28, 1995, the Eckerd
Drug store chain consisted of 1,704 stores in 13 states located primarily in the
Sunbelt, including 577 stores in Florida and 474 stores in Texas. The Company's
stores are concentrated in 10 of the 12 metropolitan statistical areas in the
United States with the largest percentage growth in population from 1980 to
1990, and, according to industry sources, the Company ranks first or second in
drug store sales in 12 of the 14 major metropolitan markets in which it
operates.
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.
According to Drug Store News, drug store sales in 1994 increased 6.3% from 1993
to approximately $82.9 billion, 72% of which was represented by conventional
drug store chains, such as Eckerd Drug stores. Drug store prescription sales
increased 9.2% from 1993 to approximately $41.5 billion in 1994, which
represented 50% of total drug store sales and approximately 66.7% of total
retail prescription sales. The remaining retail prescription sales were
represented by mail order ($7.1 billion), mass merchandisers ($7.0 billion) and
food/drug combo stores ($6.6 billion). 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"). According to
IMS-America, in 1994, third-party sales represented approximately 55.3% 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 the group of persons over age 50 is the fastest growing segment of
the United States population. 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. In 1991, persons over age 50 represented approximately 26% of the
population, although they consumed
31
<PAGE>
approximately 67% of all prescription drugs sold in the United States. This
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 1994, drug store chains and independent drug stores represented
approximately 37.3% and 29.4%, respectively, of all retail prescription sales 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
discounters), supermarkets, combination food and drug stores, mail order
distributors, hospitals, HMOs and other managed care providers have entered the
prescription industry. Supermarkets, including combination food and drug stores,
and mass merchants each represented approximately 11% of all prescription sales
in the United States in 1994. 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.
ECKERD DRUG STORES
In 1992, the Company celebrated the 40th anniversary of the opening of the
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 October 28, 1995, the Company operated the number of Eckerd
Drug stores and Eckerd Express Photo centers indicated below in each of the
following states:
DRUG STORES
ECKERD WITH ECKERD
DRUG EXPRESS PHOTO
STORES CENTERS
------ -------------
Florida................................... 577 243
Texas..................................... 474 137
North Carolina............................ 176 46
Georgia................................... 157 47
Louisiana................................. 96 19
South Carolina............................ 75 13
New Jersey................................ 36 1
Tennessee................................. 33 1
Mississippi............................... 26 --
Oklahoma.................................. 26 --
Alabama................................... 16 3
Delaware.................................. 11 --
Maryland.................................. 1 --
------ ---
Total............................... 1,704 510
------ ---
------ ---
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, divestiture or relocation of
underperforming stores and an extensive remodeling program. Since the beginning
of fiscal 1990, more than 300 Eckerd Drug stores have been opened or acquired
within the Company's existing markets, more than 200 under-performing stores
have been closed or divested, and more than 50% of the Company's remaining
stores have been remodeled. In addition, the Company has opened more than 300
Express Photo centers. The Company has also increased the degree to which
merchandise is tailored to
32
<PAGE>
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 $3.46
billion in fiscal 1990 to $4.55 billion in fiscal 1994.
In fiscal 1994, the Company opened or acquired 39 drug stores, relocated 16
drug stores and closed 22 drug stores. In addition, in the fourth quarter of
fiscal 1994, the Company decided to accelerate the closing of approximately 90
geographically dispersed, under-performing stores during the period from fiscal
1995 through mid-1996, and established a $49.0 million reserve for future store
closings. As of October 28, 1995, the Company had closed 68 of such stores.
These closings are in addition to the relatively small number of stores the
Company closes in the normal course of business. See "--Business Strategy--Store
Base Strategy."
Pursuant to the Florida Acquisition, the Company acquired 40 Rite Aid leased
locations, which are being operated as Eckerd Drug stores, and the fixtures,
inventory and prescription files of an additional 68 Rite Aid locations. As a
result of the Florida Acquisition, the Company intends to close approximately 6
Eckerd Drug stores.
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.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS
ENDED FISCAL YEARS
JULY 29, --------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Number of Ekerd Drug
stores at beginning
of period............ 1,735 1,718 1,696 1,675 1,673 1,630
Stores opened or
acquired............. 15 39 52 50 22 139(1)
Stores sold or
closed............. (84) (22) (30) (29) (20) (96)(2)
---------------- ---------- ---------- ---------- ---------- ----------
Number of Eckerd Drug
stores at end of
period............... 1,666 1,735 1,718 1,696 1,675 1,673
---------------- ---------- ---------- ---------- ---------- ----------
---------------- ---------- ---------- ---------- ---------- ----------
Number with Express
Photo centers........ 503 481 413 378 321 258
Sales of Eckerd Drug
stores............. $2,353,697 $4,396,440 $4,014,094 $3,722,523 $3,594,037 $3,330,062
Average annual sales
per Eckerd Drug
store............... N/A $ 2,561 $ 2,365 $ 2,222 $ 2,142 $ 2,036
</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 of 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;
. providing competitive prices on its merchandise, including prices on
prescription drugs to non third-party customers in order to enhance its
market share and long-term competitive position;
33
<PAGE>
. maintaining an aggressive marketing program to third-party payors,
such as insurance companies, HMOs, PPOs, other managed care providers,
government agencies and private employers;
. continuing its commitment to control costs;
. 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 primarily within the Company's existing
market areas, both through internal expansion and acquisitions and improving
the Company's store base by relocating and renovating certain stores and
closing under-performing stores; 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.
Customer Service and Convenience
The Company believes that customer service and convenience are critical in
positioning itself as the alternative to mass merchandisers, supermarkets and
other large format retailing channels. 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.
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 Company typically provides several conveniently
located, modern stores in a community. The Company's stores range in size from
8,200 to 10,800 square feet and are located primarily in neighborhood strip
centers or free standing locations. Such stores are typically open every day of
the year except Christmas, with some open until midnight or 24 hours a day.
Other customer service advantages include comfortable pharmacy waiting
areas, free health-related programs, screenings (e.g., blood pressure tests) and
drive-through pharmacy windows in most new drug stores. In addition, the Company
is continually testing new customer service features.
Competitive Pricing
While the Company believes that it competes primarily on the basis of
customer service and convenience, price is also an important factor. The
Company's policy is to price its prescription drug products more competitively
than most other traditional drug stores in its markets. The Company believes
that this policy has enhanced its competitive position with drug stores and
other shopping formats. See "Risk Factors--Competition" and "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--General--Competitive Pricing."
34
<PAGE>
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 69.4%, 64.6%, 58.0%, 49.6%,
43.1% and 36.0% of the Company's prescription sales in the first half of fiscal
1995, fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991 and fiscal 1990,
respectively. The Company currently has contracts with approximately 500
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 market itself
aggressively 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. For example, Eckerd Health Services, a joint venture
formed by the Company, is developing and offering pharmacy benefit management
services to third-party payors. Eckerd Health Services provides its expertise
in, among other things, data analysis and healthcare services, to third-party
payors and presents such third-party payors with operational cost savings
opportunities. The Company also provides mail order delivery of its prescription
drugs to third-party payors. In addition, the Company's computer systems provide
on-line adjudication, which permits the Company and the third-party payor to
determine electronically, 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 five years, the Company has reduced
the average number of days that receivables from third-party sales were
outstanding from 48 days at the end of fiscal 1990 to 21 days during fiscal 1994
while increasing third-party sales by 187% during the same period.
Cost Controls
The Company's continued commitment to control costs and maintain its
competitive position in the marketplace focuses on decreasing expenses without
decreasing the level of services provided in its stores. Store staffing remains
at historical levels in order to maintain a high level of customer service. The
Company continues 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 any additional
cost reductions will be realized. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--General--Cost Reduction Program."
Improved Productivity and Profitability of Nonpharmacy Merchandise
The Company is continually 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. Among the
over 27,000 nonpharmacy SKUs (as defined herein) typically offered in one of the
Company's stores, 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
35
<PAGE>
currently emphasizing health and beauty aids, greeting cards and the photo
finishing business. To implement its reorganization of nonpharmacy merchandise,
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 convenience food mart sections in over 550 selected locations,
with plans to add 350 in fiscal 1995. In addition, store configurations have
been altered to promote increased store traffic and more closely conform to
customer preferences, as indicated in market studies conducted by the Company,
including tailoring of specific stores offerings to specific markets where
appropriate.
Store Base Strategy
The Company intends to continue to increase the size and improve the quality
and operating performance of its store base through (i) internal expansion and
acquisitions of smaller drug store chains and independent drug stores, (ii)
relocation and renovation of existing stores and (iii) closing under-performing
stores.
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. 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.
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.
The Company's goal is to open at least 40 new drug stores in fiscal 1995 and
50 new drug stores per year thereafter through fiscal 1999 (excluding
acquisitions and relocations). The cash costs associated with opening a drug
store are estimated to be approximately $490,000, which includes initial cash
inventory costs of approximately $260,000. 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."
In fiscal 1995, the Company plans to relocate approximately 40 of its
existing stores, mainly from strip shopping centers to new free-standing
locations, and thereafter expects that the number of stores to be relocated per
year will be increased. In addition, the Company plans to completely remodel 80
of its stores and to perform minor renovations on 400 of its other stores in
fiscal 1995. The cash costs associated with a relocation or complete renovation
of an existing store are estimated to be approximately $170,000 and $150,000,
respectively (not including approximately $35,000 related to the costs of
installing scanning and satellite communications equipment, if necessary).
The Company also expects to close approximately 10-20 under-performing drug
stores per year in fiscal 1995 and thereafter through fiscal 1999 in order to
improve the quality of the Company's store base. As a result of the Company's
decision in the fourth quarter of fiscal 1994 to accelerate the closing of
approximately 90 under-performing stores, the number of stores to be closed may
decrease in the future.
In addition, the Company currently intends to continue to expand its
one-hour photo finishing business, with a goal of adding approximately 240 new
Express Photo centers by 1999. The Company
36
<PAGE>
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 are expected to be largely
financed through operating leases or arrangements such as the IFS Sale and
Leaseback.
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 System, which
began to be introduced in Eckerd Drug stores in the second half of fiscal 1995
and is scheduled to be completely implemented by the summer of 1996. The
Comp-U-Care 2000 System will improve speed and productivity in the pharmacy,
decrease customer wait time and enhance functionality, including expanded drug
utilization reviews. The Company expects that the Comp-U-Care 2000 system will
permit the transfer of information, such as prescription files, directly from
one drug store to another thereby further improving customer service by enabling
customers to fill and refill prescriptions at any Eckerd Drug store.
During fiscal 1994, the Company installed a satellite communications
network, enhanced the point-of-sale reporting system and upgraded the
merchandise buying system. The Company believes that the satellite
communications system will facilitate implementation of its pharmacy systems
enhancement plan.
As of October 28, 1995 the Company had point-of-sale product scanning
equipment in approximately 1,100 stores, which stores represent approximately
75% of the Company's total front-end sales. The Company has a goal of
implementing scanning throughout the chain by the fall of 1996. Scanning is a
system which inputs point-of-sale 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
37
<PAGE>
trends in sales by SKU, gross profit performance and inventory position and is
also a source for measuring inventory shrinkage performances. The Company has
been expanding scanning to its higher volume stores in order to maximize
benefits and recover the related expenses more efficiently. Scanning systems
will provide more and better merchant and store level information to facilitate
inventory management, automatic re-ordering, product sales and gross profit
analysis and inventory shrinkage control. The Company believes that broader use
of scanning throughout the chain will improve customer service by decreasing
customer check-out time and improving adherence to advertised sale or
promotional prices. The Company believes the direct benefits of scanning will be
sufficient to offset the related expense.
The Company is expanding 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. The Company installed the merchandise receiving component
of its new warehouse management system in the Atlanta, Georgia distribution
facility and expects the entire system to be installed in Atlanta by the spring
of 1996 and in all of its distribution facilities by the end of fiscal 1996.
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 point-of-sale 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 System, and the warehouse
management 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 approximately $440.0 million over such term. 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 or purchasing 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. In
addition, the Company is purchasing or developing software to expand the
merchandise and store information data base systems to enable the Company to
more efficiently manage its business and to start the initial roll out of the
warehouse management system to provide improved control and management of
inventory and personnel. The implementation of such software began in fiscal
1995 and is expected to be completed in fiscal 1996.
PRODUCTS AND SERVICES
Pharmacy
The primary focus of Eckerd Drug stores is the sale of prescription and
over-the-counter drugs. During fiscal 1994, the Company filled more than 89
million prescriptions, and sales of prescription and over-the-counter drugs
generated approximately 61.1% of the Company's drug store sales and other
operating revenue. During the period from fiscal 1990 through fiscal 1994, the
Company's dollar volume
38
<PAGE>
of sales of prescription drugs increased at a compound annual growth rate of
12.4% and during the first half of fiscal 1995, the dollar volume of sales of
prescription drugs increased by 15.8% as compared to the first half of fiscal
1994.
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.
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
in the United States with the largest percentage growth in population from 1980
to 1990. In addition, approximately 62% 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 "Risk
Factors--Prescription Drug Sales and Future Regulation" and "-- Business
Strategy--Marketing to Third-Party Payors."
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.
Nonpharmacy Merchandise
Eckerd Drug stores sell a wide variety of nonpharmacy merchandise, including
over-the-counter drugs, 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 $198.7 million of the Company's sales in fiscal
1994.
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.
39
<PAGE>
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 section
offering convenience food items such as staple grocery shelf items, staple and
chilled beverages, snack foods and specialty items, in approximately 550
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. The Company plans to add food mart sections to an additional 350
stores in fiscal 1995.
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, in 510 Eckerd Drug stores as of October 28, 1995. Sales from photo
finishing accounted for approximately 4.9% of the Company's drug store sales in
fiscal 1994 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 vertically integrated retail photo
finishers in the United States and the Company believes that it is a 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 1994 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(R) (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 240 new Express Photo centers by
1999.
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 9.2% of the
Company's total drug store sales in fiscal 1994.
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
40
<PAGE>
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.
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 initiatives designed to reduce shrinkage
expense, which was approximately 2.9% for fiscal 1994 compared to an
industry-wide average (calculated using the same accounting method as the
Company) of approximately 2.8% during the same time period. These initiatives
include training and awareness programs, tailored audit programs for district
managers, hiring of 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, some of which is purchased at the store level,
is distributed directly to the stores.
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 28, 1995, these advertising expenses totaled approximately 0.5% of the
Company's 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 1994, the Company reduced its advertising expense as a
41
<PAGE>
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.
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,
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, South Carolina, 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.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. The Company cannot predict whether any federal or state health care
reform legislation will eventually be passed, and if so, 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
42
<PAGE>
expands the number of persons receiving health care benefits covering the
purchase of prescription drugs, it may 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 future federal or state health care reform legislation 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. The legislation, which began to be implemented in 1994,
created 11 health care purchasing cooperatives, which will accept bids from
health care providers to provide goods and services to the cooperatives'
members. The Company expects to provide prescription drugs to the cooperatives
through its existing managed health care clients. However, the Company is unable
to predict whether its efforts will be successful or whether the Florida
legislation will have an adverse impact on the Company's financial position or
results of operations.
EMPLOYEES
As of October 28, 1995, the Company had approximately 45,000 employees, of
which 23,300 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.
43
<PAGE>
The material office and distribution center properties owned or leased by
the Company at October 28, 1995 are as follows:
APPROXIMATE OWNED OR
LOCATION SQUARE FEET LEASED
-------- ----------- --------
Largo, Florida................................ 488,000 Owned(1)
Charlotte, North Carolina..................... 587,000 Owned
Garland, Texas................................ 270,000 Owned
Conroe, Texas................................. 345,000 Owned
Orlando, Florida.............................. 587,000 Leased(2)
Newnan, Georgia............................... 244,000 Owned(3)
Hammond, Louisiana............................ 185,000 Owned(3)(4)
- ------------
(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).
(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. Such sublease will be
terminated in April 1996. The Company is marketing the Hammond property for
sale.
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.
44
<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..................... 61 Director, Chairman of the Board and Chief Executive
Officer
Francis A. Newman.................. 47 Director, President and Chief Operating Officer
John W. Boyle...................... 66 Director
Dr. James T. Doluisio.............. 60 Director
Donald F. Dunn..................... 70 Director
Albert J. Fitzgibbons, III......... 50 Director
Margaret H. Jordan................. 52 Director
Lewis W. Lehr...................... 74 Director
Alexis P. Michas................... 37 Director
Rupinder S. Sidhu.................. 39 Director
James M. Santo..................... 54 Executive Vice President/Administration and
Secretary
Samuel G. Wright................... 45 Executive Vice President/Chief Financial Officer
Kenneth L. Flynn................... 50 Senior Vice President/Store Operations
Edward W. Kelly.................... 50 Senior Vice President/Merchandising
Richard R. Powis................... 47 Senior Vice President/Pharmacy
Martin W. Gladysz.................. 43 Vice President/Treasurer
Robert E. Lewis.................... 35 Vice President/General Counsel and Assistant
Secretary
Thomas M. Nash..................... 47 Vice President/Real Estate
N. John Simmons, Jr................ 40 Vice President/Controller
</TABLE>
The Company has announced that Mr. Turley will relinquish his position as
Chief Executive Officer at the end of fiscal 1995 while continuing in his role
as Chairman of the Board. Upon the recommendation of Mr. Turley, the Board of
Directors is expected to appoint Mr. Newman, currently the President and Chief
Operating Officer, to the position of Chief Executive Officer at its February
1996 meeting.
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. F&M filed bankruptcy
under Chapter 11 of the United States Bankruptcy Code in December 1994. 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 retired as Vice Chairman of the Board and Chief Financial Officer
of the Company on December 31, 1994, positions he had held since February 1993.
He served as a consultant to the Company during the month of January 1995. Prior
to being Vice Chairman, he was Senior Vice
45
<PAGE>
President/Finance and Administration of the Company, a position he held for more
than five years. He joined Old Eckerd as Senior Vice President/Finance and
Administration in 1983. Prior to joining Old Eckerd, Mr. Boyle served as Vice
Chairman of the Board (1978-1980) and, thereafter, as Chairman of the Board
(1980-1983) of May Department Store Co., St. Louis, Missouri. He was a director
of Old Eckerd between 1983 and 1986.
Dr. Doluisio has been Dean of the College of Pharmacy, University of Texas,
Austin, Texas since 1973. Dr. Doluisio 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.
Mr. Fitzgibbons has been a director of Merrill Lynch Capital Partners since
1988. He has been a director of Stonington Partners, Inc. ("Stonington
Partners") since August 1993; a Partner of Stonington Partners since November
1993; a partner of Merrill Lynch Capital Partners from 1993 to July 1994; 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 ML & Co. from 1978 to
July 1994; and Vice President of Merrill Lynch from 1974 to 1988. He is also a
director of Borg-Warner Security Corporation, Borg-Warner Automotive, Inc.,
Dictaphone Corporation and United Artists Theatre Circuit, Inc.
Ms. Jordan has been Vice President--Health Care and Employee Services of
Southern California Edison Company since 1992. Prior thereto, she worked for
Kaiser Foundation Health Plan of Texas, Inc. for more than the preceding five
years, most recently as Vice President and Regional Manager of Texas. Ms. Jordan
also serves as a director of Epitope, 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 Stonington Partners since November 1993; a director of
Stonington Partners since August 1993; a partner of Merrill Lynch Capital
Partners from 1993 to July 1994; a Senior Vice President of Merrill Lynch
Capital Partners from 1989 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. from 1991 to July 1994; 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 Borg-Warner Security Corporation, Borg-Warner Automotive, Inc., Blue Bird
Corporation, Dictaphone Corporation, Pathmark Stores, Inc. and Supermarkets
General Holding Corporation.
Mr. Sidhu has been a director of Merrill Lynch Capital Partners since 1988.
He has been a Special Limited Partner of Stonington Partners since August 1993;
a partner of Merrill Lynch Capital Partners from 1993 to July 1994; a Senior
Vice President of Merrill Lynch Capital Partners from 1987 to July 1994; 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
46
<PAGE>
Banking Division of ML & Co. from 1987 to 1989. He is also a director of Clinton
Mills, Inc., First-USA, Inc., and Wherehouse Entertainment, Inc.
Mr. Santo was appointed Executive Vice President/Administration in May,
1995. Prior thereto he was appointed Senior Vice President/Administration in
February 1993 and was also Vice President/Legal Affairs of the Company, a
position he had held for more than the five years prior to 1993. In addition,
Mr. Santo was appointed Secretary of the Company effective January 1, 1992.
Mr. Wright was appointed Executive Vice President/Chief Financial Officer of
the Company in May 1995. Prior thereto he was appointed Senior Vice
President/Chief Financial Officer in February 1995 and was also Senior Vice
President/Finance from February 1993 until February 1995 and Vice President and
Controller of the Company from September 1988 until February 1993. Mr. Wright
became Vice President of the Company in June 1986. In addition, Mr. Wright had
served as Vice President of Finance of Eckerd Drug Company, formerly Old
Eckerd's principal subsidiary ("Eckerd Drug Company"), since May 1985.
Mr. Flynn was appointed Senior Vice President/Store Operations of the
Company in December 1994. Prior to joining the Company, he was Executive Vice
President with the Thrifty/Payless drug chain in Portland, Oregon from August
1993. Prior to joining Thrifty/Payless in August 1993, Mr. Flynn was employed by
Lucky Stores, Inc. for over 30 years, most recently as Senior Vice
President/Store Operations.
Mr. Kelly was appointed Senior Vice President/Merchandising in February
1993. Prior thereto he had served as Vice President of Merchandising of Eckerd
Drug Company for more than the preceding five years.
Mr. Powis was appointed Senior Vice President/Pharmacy in April 1995. Prior
to joining the Company, he was Senior Vice President Pharmacy Services for the
American Association of Retired Persons ("AARP") from September 1994. Prior to
joining AARP, Mr. Powis was employed for over 19 years by Hooks SupeRx, Inc.,
most recently as Senior Vice President Pharmacy Services.
Mr. Gladysz was appointed Vice President/Treasurer of the Company in May
1994. Prior to joining the Company, Mr. Gladysz was Executive Vice
President/Treasurer for Fortune Bancorp, a Florida banking organization, a
position he held for more than the five years prior to 1994.
Mr. Lewis was appointed Vice President/General Counsel and Assistant
Secretary of the Company in August 1994. He was a shareholder in the law firm of
Shackleford, Farrior, Stallings & Evans, P.A. in Tampa, Florida, from January
1992 to August 1994 and was an associate at that firm for more than five years
prior thereto.
Mr. Nash has been Vice President/Real Estate of the Company since August
1995. Prior to joining the Company, he served as Vice President--Real Estate at
Checker's Drive-In Restaurants, Inc. from 1993 until 1995 and at Morrison
Restaurants, Inc. from 1990 until 1993.
Mr. Simmons was appointed Vice President/Controller of the Company in August
1995. Prior to joining the Company, Mr. Simmons served as Vice President of
Finance and Chief Financial Officer of Checkers Drive-In Restaurants, Inc. from
January 1993 until August 1995. Prior thereto, he was a Partner at KPMG Peat
Marwick for more than the preceding five years.
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, Mr. Newman became a director in July 1993 and Ms. Jordan became a director
in September 1995.
47
<PAGE>
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. The terms of office of Messrs. Fitzgibbons, Turley
and Lehr will expire on the date of the annual meeting of stockholders of the
Company (the "Annual Meeting") in 1996, the terms of office of Messrs. Boyle,
Doluisio and Sidhu will expire on the date of the Annual Meeting in 1997 and the
terms of office of Messrs. Michas, Dunn and Newman and Ms. Jordan will expire on
the date of the Annual Meeting in 1998.
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.
Messrs. Fitzgibbons, Sidhu and Michas are employees of Stonington Partners
and serve on the Board of Directors of the Company as representatives of the
Merrill Lynch Investors. In August 1993, Messrs. Fitzgibbons, Sidhu and Michas,
together with other colleagues from Merrill Lynch Capital Partners, founded
Stonington Partners. In July 1994, Messrs. Fitzgibbons, Sidhu and Michas left
the employment of Merrill Lynch, although each has continued as a director of
Merrill Lynch Capital Partners and the other companies in which certain
affiliates of Merrill Lynch have equity investments and for which they were
serving as a director in July 1994 (such other companies, the "Merrill Lynch
Affiliates"). In this connection, each of Messrs. Fitzgibbons, Sidhu and Michas
entered into a consulting agreement with Merrill Lynch Capital Partners which
provides, among other things, for his continued availability to serve on the
Board of Directors of the Company and the respective boards of directors of the
Merrill Lynch Affiliates for which he was serving as a director in July 1994
until requested to resign by Merrill Lynch Capital Partners, and for his
compensation (directly or indirectly) by Merrill Lynch Capital Partners for
serving in such director capacities and for other consulting services.
Officers of the Company serve at the discretion of the Board of Directors.
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.
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 28, 1995 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
table does not reflect the Merrill Lynch Distribution or the possible sale of
additional shares by the Merrill Lynch Investors if the Underwriters'
over-allotment option is exercised in full.
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OWNERSHIP AFTER
THE OFFERING THE OFFERING
-------------------------- --------------------------
SHARES OF SHARES SHARES OF
COMMON STOCK PERCENTAGE TO BE SOLD COMMON STOCK PERCENTAGE
------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Investors (1).. 8,020,634 22.95 2,500,000 5,520,634(2) 15.80(2)
Stewart Turley(3)............ 480,723 1.36 -- 480,723 1.36
Francis A. Newman (4)........ 103,350 * -- 103,350 *
John W. Boyle (5)............ 164,505 * -- 164,505 *
Dr. James T. Doluisio(6) .... 6,937 * -- 6,937 *
Donald F. Dunn............... 13,217 * -- 13,217 *
Albert J. Fitzgibbons, III(7) 4,717 * -- 4,717 *
Lewis W. Lehr (8)............ 9,017 * -- 9,017 *
Alexis P. Michas (7)......... 4,675 * -- 4,675 *
Rupinder S. Sidhu (7)........ 53,530 * -- 53,530 *
Robert L. Myers (9).......... 45,133 * -- 45,133 *
James M Santo (10)........... 63,053 * -- 63,053 *
Samuel G. Wright (11)........ 62,754 * -- 62,754 *
All directors and executive
officers as a group (20)
persons (12)(13)........... 1,069,224 3.04 -- 1,069,224 3.04
</TABLE>
- ------------
* Less than one percent
(1) As of October 28, 1995 shares of Common Stock beneficially owned by the
Merrill Lynch Investors were owned of record as follows: 516,748 shares by
Merrill Lynch Capital Corporation, 5,318,821 shares by Merrill Lynch
Capital Appreciation Partnership No. II, L.P., 135,311 shares by ML
Offshore LBO Partnership No. II, 140,178 shares by ML Employees LBO
Partnership No. I, L.P., 47,974 shares by Merrill Lynch KECALP L.P. 1986,
821,549 shares by Merrill Lynch Capital Appreciation Partnership No. B-IX,
L.P., 481,223 shares by ML Offshore LBO Partnership No. B-IX, 13,029 shares
by MLCP Associates L.P. No. II., 72,604 shares by Merrill Lynch KECALP L.P.
1989, 447,968 shares by ML IBK Positions, Inc., and 25,229 shares by
Merchant Banking L.P. No. IV. The address for the Merrill Lynch Investors
and each of the aforementioned record holders is c/o Merrill Lynch & Co.,
Inc., Merrill Lynch World Headquarters, South Tower, New York, New York
10080-6123.
(2) After the Merrill Lynch Distribution, the Merrill Lynch Investors will
beneficially own shares of Common Stock, which would represent
approximately % of the shares of Common Stock outstanding after the
Offering.
(3) Total does not reflect the 43,595 shares of Common Stock transferred by Mr.
Turley to certain family members. Mr. Turley disclaims beneficial ownership
of such shares. Total includes 16,000 shares transferred by Mr. Turley to
The Stewart Turley Foundation, Inc. Mr. Turley disclaims
(Footnotes continued on following page)
49
<PAGE>
(Footnotes continued from preceding page)
beneficial ownership of such shares. Total includes options covering 44,421
shares of Common Stock which are exercisable as of October 28, 1995 or
within 60 days thereafter.
(4) Total includes options covering 100,000 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(5) Total does not reflect 125,393 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 40,800
shares of Common Stock which are exercisable as of October 28, 1995 or
within 60 days thereafter.
(6) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(7) Messrs. Fitzgibbons, Michas and Sidhu are directors of the Company and
Merrill Lynch Capital Partners. Until July 1994 they were officers of
Merrill Lynch Capital Partners and employees of ML & Co. 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 Stonington Partners, 767 Fifth Avenue, 48th Floor,
New York, NY 10153.
(8) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(9) Mr. Myers resigned as Senior Vice President/Pharmacy of the Company on May
26, 1995.
(10) Total includes options covering 9,100 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(11) Total includes options covering 9,100 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(12) The total number of all directors and executive officers as a group
includes Robert L. Myers, the former Senior Vice President/Pharmacy, who
resigned from his position on May 26, 1995.
(13) Total includes options covering 216,589 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
50
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries of the principal terms of 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 is party to the Credit Agreement dated as of June 14, 1993 as
amended and restated as of August 3, 1994 (the "Credit Agreement") with the
financial institutions party thereto (the "Lenders"), Chemical Bank, a New York
banking corporation ("Chemical Bank"), 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 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.
On October 31, 1995, the Company entered into a Commitment Letter with the
Managing Agents, the Lenders, the Administrative Agent and the Documentation
Agent (the "Commitment Letter") pursuant to which the parties agreed to amend
and restate the Credit Agreement on certain terms and conditions.
As of the date of this Prospectus, the amendment and restatement proposed by
the Commitment Letter has not been completed. The Company expects to complete
the 1995 Credit Agreement Amendment by the end of November 1995.
Terms and Conditions of Existing Credit Agreement
The Lenders extended credit (i) on a term basis in an aggregate principal
amount not to exceed $500.0 million (the "Term Loans") and (ii) on a revolving
basis at any time and from time to time prior to July 29, 2000, in an aggregate
principal amount outstanding not in excess of $350.0 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 October 28, 1995,
the Company had approximately $405.7 million outstanding under the Term Loans
and $167.5 million outstanding under the Revolving Loans and had unused and
available borrowing commitments under the Revolving Loans of $94.5 million
(which is net of $88.0 million of letters of credit). The term of the Credit
Agreement expires on July 29, 2000.
The Company uses 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 active 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.
51
<PAGE>
The Term Loans and the Revolving Loans bear interest at a rate per annum
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%) 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, in each case, the applicable LIBOR or ABR spread (the "Interest
Spread"), as the case may be. The Interest Spread is determined by reference to
the ratio of funded debt to earnings before interest, taxes, depreciation and
amortization (the "Ratio"). If the Ratio is (w) less than or equal to 2.5
("Level I Ratio"), the Interest Spread is 0% on ABR loans and 3/4 of 1% on LIBOR
loans, (x) less than or equal to 3.0 but greater than 2.5 ("Level II Ratio"),
the Interest Spread is 0% on ABR loans and 1% on LIBOR loans, (y) less than or
equal to 3.5 but greater than 3.0 ("Level III Ratio"), the Interest Spread is
1/4 of 1% on ABR loans and 1 1/4% on LIBOR loans, and (z) greater than 3.5
("Level IV Ratio"), the Interest Spread is 1/2 of 1% on ABR loans and 1 1/2% on
LIBOR loans. Interest is computed on the basis of actual number of days elapsed
over a 360-day year except when the rate is determined by reference to the prime
rate, in which case it is computed on the basis of actual number of days elapsed
over a 365- or 366-day year. The Swingline Loans bear interest at the rate
applicable to ABR Revolving Loans.
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 on the undrawn amount of the revolving facilities determined by
reference to the Ratio. If the Company has achieved a (x) Level I Ratio, the
commitment fee is 1/4 of 1%; (y) Level II Ratio or Level III Ratio, the
commitment fee is 3/8 of 1%; or (z) Level IV Ratio, the commitment fee is 1/2 of
1%. 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 Term Loans will be amortized on the following schedule:
<TABLE>
<CAPTION>
DATE AMOUNT DATE AMOUNT
---- ----------- ---- -----------
<S> <C> <C> <C>
February 3, 1996................ $33,413,000 May 2, 1998..................... $14,320,000
April 27, 1996.................. 14,320,000 August 1, 1998.................. 14,320,000
August 3, 1996.................. 14,320,000 October 31, 1998................ 14,320,000
November 2, 1996................ 14,320,000 January 30, 1999................ 47,733,000
February 1, 1997................ 33,413,000 May 1, 1999..................... 14,320,000
May 3, 1997..................... 14,320,000 July 31, 1999................... 14,320,000
August 2, 1997.................. 14,320,000 October 30, 1999................ 14,320,000
November 1, 1997................ 14,320,000 January 29, 2000................ 52,507,000
January 31, 1998................ 38,187,000 April 29, 2000.................. 14,320,000
July 29, 2000................... 14,320,000
</TABLE>
The Company is required to prepay borrowings under the Credit Agreement with
(i) 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, (ii) in any fiscal year, the net proceeds of any incurrence of debt
(other than indebtedness permitted under the Credit Agreement), and (iii) 50% of
the net proceeds of any equity issuance. Mandatory prepayments are to be applied
(i) first, pro rata against remaining scheduled installments of principal due in
respect of Term Loans and (ii) second, to prepay Swingline Loans and then other
Revolving Loans.
The Company has the right to prepay any borrowings under the Credit
Agreement in whole or in part at any time. Optional prepayments of Term Loans
are to be applied (i) first, in the order of maturity of the scheduled
installments of principal due on the repayment dates occurring during the
twelve-month period beginning on the date of such prepayment and (ii) second,
pro rata against the remaining scheduled installments of principal due in
respect of Term Loans.
52
<PAGE>
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 restated the
Credit Agreement, (b) indebtedness that consists of purchase money indebtedness
or capital lease obligations and is either (x) incurred by the Company in the
ordinary course of business to finance capital expenditures or (y) exists with
respect to an acquired entity if such indebtedness exists at the time of
acquisition; provided, that indebtedness described in (x) and (y) shall not
exceed $10.0 million in any fiscal year and indebtedness described in (x) must
be incurred within 90 days after the making of the capital expenditure financed
thereby, (c) certain deferred purchase price obligations in an amount not to
exceed $5.0 million, (d) reimbursement obligations in limited amounts, (e)
certain intercompany indebtedness, (f) indebtedness in respect of interest rate
protection agreements, (g) the 9 1/4% Notes, (h) subordinated indebtedness
incurred solely to redeem the 9 1/4% Notes in whole at an interest rate more
favorable than that in effect under the 9 1/4% Notes, and on terms no less
favorable to the Company than those in effect under the 9 1/4% Notes, and (i)
obligations of the Company and certain subsidiaries under various stock or
option purchase agreements; (ii) incurring or permitting to exist any liens,
other than, among other things, (a) certain specified liens existing on the date
the Company restated the Credit Agreement, (b) liens existing on property or
assets prior to the acquisition thereof by the Company, (c) purchase money
security interests in real property, improvements thereto or equipment, and (d)
liens on consigned goods; (iii) entering into sale and leaseback transactions
other than those specified in the Credit Agreement; (iv) making investments,
loans or advances in excess of $7.0 million in the aggregate at any time
outstanding, other than, among others, the acquisitions of entities engaged in
one or more lines of business substantially similar to those engaged in on the
date the Credit Agreement was restated, not to exceed $50.0 million in any
instance or $100.0 million in any fiscal year (subject, in the case of any such
acquisition exceeding $15.0 million, to certain pro forma financial ratio
compliance tests); (v) merger, consolidation, sale of all or any substantial
part of any asset or any capital stock of a subsidiary, or acquisitions
(including leases of all or any substantial part of the assets of any entity),
except for, among other things, (a) the sale of inventory in the ordinary course
of business, (b) the sale of accounts receivable on an ongoing basis; provided
that the purchaser of such receivables may at no time invest more than $75.0
million, (c) the sale or other disposal of certain specified real estate, and
(d) the sale of $35.0 million of assets, provided that sales not exceed $10.0
million in any twelve-month period; (vi) declaring or paying dividends or
distributions, except for, among other things, purchases or redemptions of stock
in connection with certain existing management subscription agreements; (vii)
engaging in any transaction with any affiliate other than, subject to limited
exceptions, on arms-length terms; (viii) engaging in business activities not
reasonably related to their current business activities; (ix) subject to limited
exceptions, prepaying or redeeming indebtedness; (x) amending, waiving,
modifying or terminating certain documents, including, among others, their
respective charter documents and the terms of material indebtedness of the
Company, unless such amendment, waiver, modification or termination is not
adverse to the Lenders; and (xi) maintaining a bank account with a financial
institution other than a Lender, except as expressly specified.
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: (i) the Ratio; (ii) interest coverage
ratio; 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 related loan documents; (iv) the failure to pay any principal
or interest due in respect to 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 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 subsidiary
53
<PAGE>
which shall remain undischarged for a period of 10 consecutive days; (vii)
certain events under the Employee Retirement Income Security Act of 1975; and
(viii) a change in control ("Change in Control") which shall occur, if, among
other things, (a) any person or group 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.
Terms and Conditions of the Proposed Amendment and Restatement of the Credit
Agreement
Pursuant to the Commitment Letter, the Company has received commitments from
the Managing Agents and others to amend and restate the Credit Agreement on
certain terms and conditions (the "1995 Credit Agreement Amendment").
The Commitment Letter contemplates the Lenders making available senior
secured credit facilities in an aggregate principal amount of $750.0 million
(the "Revised Credit Facilities") on terms and conditions which will be either
more favorable to the Company or substantially the same as those upon which the
Lenders have extended credit under the Credit Agreement. The principal
differences between the Credit Agreement and the 1995 Credit Agreement Amendment
are expected to be the following: (i) the Revolving Credit Facility will have an
aggregate principal amount of $500.0 million and will expire on the fifth
anniversary of the execution of the 1995 Credit Agreement Amendment; (ii) the
Term Loan Facility will have an aggregate principal amount of $250.0 million and
will mature on the fifth anniversary of the execution of the 1995 Credit
Agreement Amendment; (iii) scheduled payments of the amounts outstanding under
the Term Loan Facility will be $50.0 million per fiscal year, payable in $10.0
million installments in each of the first three quarters and $20.0 million in
the fourth quarter; (iv) certain of the financial and restrictive covenants
imposed on the Company and its subsidiaries will be amended favorably for the
Company, including an increase in the aggregate permitted net investment of a
purchaser of accounts receivable to $125 million; (v) the interest rates for the
Revised Credit Facilities will be adjusted as follows: the rates for committed
borrowings under the Revised Credit Facilities, at the Company's option, will be
either (a) ABR or (b) Adjusted LIBOR plus the applicable LIBOR Spread, with the
LIBOR Spread to be determined by reference to the ratio of EBITDA of the Company
to its Interest Expense (as such terms are to be defined in the 1995 Credit
Agreement Amendment, with such ratio being referred to as the "Interest Coverage
Ratio"); (vi) if the Interest Coverage Ratio is (a) less than 3.5 ("Level I
Interest Coverage Ratio"), the LIBOR Spread will be 75 basis points per annum,
(b) equal to or greater than 3.5 but less than 4.5, ("Level II Interest Coverage
Ratio"), the LIBOR Spread will be 62.5 basis points per annum or (c) equal to or
greater than 4.5 ("Level III Interest Coverage Ratio"), the LIBOR Spread will be
50 basis points per annum; provided, however, that the LIBOR Spread cannot be
less than 62.5 basis points per annum prior to receipt by the Lenders of the
Company's financial statements for the fiscal quarter ending October 1996 (the
"October 1996 Financial Statements"); provided, further, that if, after the
receipt of the October 1996 Financial Statements, the Interest Coverage Ratio is
greater than or equal to 4.5, no default or event of default has occurred and is
continuing and the Revised Credit Facilities have received a Baa3 or better
rating from Moody's Investors Service, Inc. and a BBB- or better rating from
Standard & Poors Ratings Service, the LIBOR Spread will be 37.5 basis points per
annum; and (vii) the commitment fees payable to the Lenders by the Company will
be lowered as follows: (a) if the Company achieves a Level I Interest Coverage
Ratio, the commitment fee will be 31.25 basis points per annum, (b) if the
Company achieves a Level II Interest Coverage Ratio, the commitment fee will be
25 basis points per annum or (c) if the Company achieves a Level III Interest
Coverage Ratio, the commitment fee will 18.75 basis points per annum; provided,
however, that the commitment fees cannot be less than 25 basis points per annum
until delivery to the Lenders of the October 1996 Financial Statements.
Each of Chemical Bank and NationsBank has committed to provide $100 million
of the Revised Credit Facilities. The Company has received commitments from
arrangers to use commercially
54
<PAGE>
reasonable efforts to assemble a syndicate of financial institutions to provide
the balance of the necessary commitments for the Revised Credit Facilities.
The commitments made pursuant to the Commitment Letter are conditional on
the entire amount of the Revised Credit Facilities being committed for by
Lenders; the negotiation, execution and delivery of satisfactory documentation;
there not occurring or becoming known any material adverse change with respect
to the condition (financial or otherwise/operations, business, assets,
liabilities, prospects or national agreements of the Company and its
subsidiaries taken as a whole; and certain other conditions specified in the
Commitment Letter.
THE 9 1/4% NOTES
The 9 1/4% Notes are senior subordinated obligations of the Company,
subordinated in right of payment to all existing and future senior debt of the
Company. The 9 1/4% Notes are redeemable at the option of the Company, in whole
or in part, at specified redemption prices, and upon a Change in Control. The 9
1/4% Notes bear interest at 9 1/4% per annum and mature on February 15, 2004.
The indenture pursuant to which the 9 1/4% Notes were issued (the "9 1/4%
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 9 1/4% 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 in Control, (i) the Company will have the option to redeem the
9 1/4% Notes and (ii) subject to certain conditions, the Company will be
required to make an offer to purchase each holder's 9 1/4% 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 9 1/4% Notes in the event of Asset Sales (as defined in the 9
1/4% Notes Indenture). The Credit Agreement, however, prohibits the Company from
optionally redeeming the 9 1/4% Notes.
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
On June 15, 1993, the Company 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.
55
<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). As of October 28, 1995,
there were 34,950,857 shares of Common Stock outstanding and employee stock
options outstanding to purchase an aggregate of 1,656,199 shares of Common Stock
(of which options to purchase an aggregate of 302,328 shares of Common Stock
were exercisable). In addition, another 1,757,910 shares of Common Stock were
reserved for issuance pursuant to the Company's 1993 and 1995 Stock Option and
Incentive Plans. 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.
56
<PAGE>
Registrar and Transfer Agent
Mellon Securities Trust Company acts as Registrar and Transfer Agent for the
Common Stock.
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.
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. 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.
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 constitutes a part.
57
<PAGE>
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 the Company who held shares immediately 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 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 Company and the Eckerd Corporation Profit Sharing Plan have also entered
into a demand registration rights agreement with terms similar to those
contained in the Registration Rights Agreement (except that such registration
rights agreement does not provide for incidental registration rights).
58
<PAGE>
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 within six months after the
effective date of the Company's most recent registration statement (other than
registration on Form S-4 or S-8) and (ii) the 1% Holders 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 has included the shares of Common Stock to be sold by the
Selling Stockholders in the Offering pursuant to the exercise by such Selling
Stockholders of their demand registration rights under the Registration Rights
Agreement.
59
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement (the
"Purchase Agreement") among the Company, the Selling Stockholders and each of
the underwriters named below (the "Underwriters"), the Selling Stockholders
severally have agreed to sell to each of the Underwriters, and each of the
Underwriters severally has agreed to purchase from the Selling Stockholders, the
number of shares of Common Stock set forth opposite its name below.
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
CS First Boston Corporation..................................
Morgan Stanley & Co. Incorporated............................
Raymond James & Associates, Inc.............................. .........
---------
Total........................................................ 2,500,000
---------
---------
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), CS
First Boston Corporation, Morgan Stanley & Co. Incorporated and Raymond James &
Associates, Inc. are acting as representatives (the "Representatives") of the
several Underwriters.
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock offered hereby if any of such shares are purchased. Under certain
circumstances, the commitments of the non-defaulting Underwriters may be
increased.
The Underwriters have advised the Company that they 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 at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to
certain other dealers. After the Offering, the public offering price, concession
and discount may be changed.
The Selling Stockholders have granted the Underwriters an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of an additional 375,000 shares to cover over-allotments, if any, at
the public offering price set forth on the cover page hereof, less the
underwriting discount. The Underwriters may exercise such option only to cover
over-allotments, if any, made on the sale of the shares offered hereby. To the
extent that the Underwriters exercise such option, each Underwriter will be
obligated, subject to certain conditions, to purchase the number of shares
proportionate to such Underwriter's initial amount reflected in the foregoing
table.
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."
The Common Stock is listed on the NYSE under the symbol "ECK." Because the
Company is an affiliate of Merrill Lynch, one of the Underwriters, the Offering
is being conducted in accordance with the applicable provisions of Schedule E to
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 NYSE, Merrill Lynch is precluded from
60
<PAGE>
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 1% Holder 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 or exercisable for Common Stock, or any rights or warrants
to acquire Common Stock, subject to certain exceptions, without the prior
written consent of the Representatives of the Underwriters. See "Risk
Factors--Shares Eligible for Future Sale." Approximately 23.22% of the shares of
Common Stock outstanding upon consummation of the Offering will be subject to
such lock-up agreements. In addition, it is anticipated that certain of the
Merrill Lynch Investors that are limited partnerships will be distributing
shares of Common Stock pursuant to the Merrill Lynch Distribution. The Merrill
Lynch Investors do not expect that the number of shares to be so distributed
will exceed 400,000. As a condition to receiving shares of Common Stock in the
Merrill Lynch Distribution, such partners have agreed to be bound by the
same lock-up provision as the 1% Holders for a period of 120 days after the
effective date of the Registration Statement. The Merrill Lynch Distribution is
expected to occur as soon as practicable after 120 days from the effective date
of the Registration Statement, or on such earlier date consented to by the
Representatives of the Underwriters. 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, 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, subject to certain exceptions, without the prior written
consent of the Representatives of the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
Merrill Lynch, an affiliate of the Merrill Lynch Investors, acted as one of
the representatives of the underwriters in both the Secondary Offering and the
August Offering and received underwriting commissions and related fees of
approximately $809,200 and approximately $3.0 million, respectively. In
addition, Merrill Lynch received fees of approximately $1.4 million in
connection with the financial advisory services rendered to the Company in
connection with the Insta-Care Sale. In addition to Merrill Lynch, certain of
the Underwriters acted as representatives of the Underwriters in both the
Secondary Offering and the August Offering and, from time to time, perform
investment banking and other financial services for the Company.
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
Robert E. Lewis, Esq., Vice President/General Counsel of the Company. 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
the Merrill Lynch Investors, and Skadden, Arps, Slate, Meagher & Flom
occasionally acts as counsel to the other Underwriters.
61
<PAGE>
EXPERTS
The consolidated financial statements and schedules of the Company and
subsidiaries as of January 28, 1995 and January 29, 1994, and for the years
ended January 28, 1995, January 29, 1994 and January 30, 1993, included in the
Company's Annual Report on Form 10-K405 for the period ended January 28, 1995
and incorporated herein by reference, have been incorporated by reference in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included or incorporated by reference herein, and upon the
authority of that firm as experts in accounting and auditing.
With respect to the unaudited interim financial information of Eckerd
Corporation and subsidiaries for the thirteen week periods ended April 29, 1995
and April 30, 1994 and the thirteen and twenty-six week periods ended July 29,
1995 and July 30, 1994, incorporated by reference herein, the independent
certified public accountants have reported that they applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate reports included in the Eckerd Corporation and
subsidiaries' quarterly reports on Form 10-Q for each of the quarters ended
April 29, 1995 and July 29, 1995, and incorporated by reference herein, state
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
such information should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to the liability
provisions of section 11 of the Securities Act for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by the accountants within
the meaning of sections 7 and 11 of the Securities Act.
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 and the 9 1/4% Notes
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.
62
<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-K405 for the fiscal year ended
January 28, 1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
April 29, 1995.
3. The Company s Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995.
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 or by telephone at
(813) 399-6000.
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.
63
<PAGE>
- --------------------------------------------- -------------------------------
- --------------------------------------------- -------------------------------
NO DEALER, SALESPERSON OR ANY OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE 2,500,000 SHARES
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 [ECKERD LOGO]
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 COMMON STOCK
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 PROSPECTUS
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
Risk Factors.......................... 8
Capitalization........................ 12
Price Range of Common Stock and
Dividend Policy..................... 13
The Company........................... 14
Selected Historical Financial Data.... 17
Pro Forma Financial Data.............. 19
Management's Discussion and Analysis
of Results of Operations and
Financial Condition................. 21 MERRILL LYNCH & CO.
CS FIRST BOSTON
Business.............................. 31 MORGAN STANLEY & CO.
INCORPORATED
Management............................ 45 RAYMOND JAMES & ASSOCIATES, INC.
Principal and Selling Stockholders.... 49
Description of Certain Indebtedness... 51
Description of Capital Stock.......... 56
Underwriting.......................... 60
Legal Matters......................... 61
Experts............................... 62
Available Information................. 62 , 1995
Incorporation of Certain Information
by Reference........................ 63
- --------------------------------------------- -------------------------------
- --------------------------------------------- -------------------------------
<PAGE>
APPENDIX
OF
OMITTED GRAPHIC MATERIAL
A. Graphic Material on Page 2 of Prospectus:
1. "Eckerd" logo
2. "It's right at Eckerd." logo
3. Map of number of Eckerd Drug stores by state as listed under the
caption "Business--Eckerd Drug Stores" in the Prospectus
B. Photographs on Inside Back Cover Page of Prospectus:
1. Product counter inside Eckerd Drug store
2. Eckerd Drug store exterior
3. "It's right at Eckerd." 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.
Securities and Exchange Commission filing fee................. $ 24,582
National Association of Securities Dealers, Inc. filing fee... 12,791
Blue sky fees and expenses (including counsel fees)........... 16,500
Costs of printing and engraving............................... 55,000
Legal fees and expenses....................................... 300,000
Accounting fees and expenses.................................. 20,000
Miscellaneous................................................. 21,127
--------
Total......................................................... $450,000
--------
--------
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 indemnification is not
expressly provided by the Delaware General Corporation Law. The Registrant
II-1
<PAGE>
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:
<TABLE>
<CAPTION>
<C> <S>
1.1 --Form of Purchase Agreement among the Registrant, the Selling Stockholders
and the 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)).
3.1(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 --Credit Agreement dated as of June 14, 1993, as amended and restated as of
August 3, 1994 (incorporated by reference to Exhibit 10.1 of the Form 10-Q
of the Registrant dated July 30, 1994 (File No. 1-4844)).
4.3 --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 Exhibits 4.01 and 4.02 of the Form
8-K of the Registrant dated October 26, 1993 (File No. 1-4844)).
5.1 --Opinion and consent of Robert E. Lewis, Esq.
15.1 --Letter of KPMG Peat Marwick LLP dated November 17, 1995 re Unaudited
Interim Financial Information.
23.1 --Consent of KPMG Peat Marwick LLP dated November 17, 1995.
23.2 --Consent of Robert E. Lewis, Esq. as to the validity of the Common Stock
being registered (included in Exhibit 5.1 hereto).
24.1 --Power of Attorney (included in signature pages hereto).
</TABLE>
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
1. 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.
2. 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.
3. 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.
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Largo, State of Florida on November 17, 1995.
ECKERD CORPORATION
By: /s/ SAMUEL G. WRIGHT
..................................
Samuel G. Wright
Executive Vice President/Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of James M. Santo, Esq. and Robert E. Lewis,
Esq., his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities (until revoked in writing), to sign any and all amendments
and supplements (including post-effective amendments) to this Registration
Statement and to sign any and all additional registration statements relating to
the same offering of securities as this Registration Statement that is filed
pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------------------- ------------------
<S> <C> <C>
/s/ STEWART TURLEY Chairman of the Board and Chief November 17, 1995
................................... Executive Officer
Stewart Turley
/s/ FRANCIS A. NEWMAN President, Chief Operating Officer November 17, 1995
................................... and Director
Francis A. Newman
/s/ JOHN W. BOYLE Director November 17, 1995
...................................
John W. Boyle
/s/ SAMUEL G. WRIGHT Executive Vice President/Chief November 17, 1995
................................... Financial Officer
Samuel G. Wright
/s/ JAMES T. DOLUISIO Director November 17, 1995
...................................
James T. Doluisio
/s/ DONALD F. DUNN Director November 17, 1995
...................................
Donald F. Dunn
II-4
<PAGE>
/s/ ALBERT J. FITZGIBBONS, III Director November 17, 1995
...................................
Albert J. Fitzgibbons, III
/s/ MARGARET H. JORDAN Director November 17, 1995
...................................
Margaret H. Jordan
/s/ LEWIS W. LEHR Director November 17, 1995
...................................
Lewis W. Lehr
/s/ RUPINDER S. SIDHU Director November 17, 1995
...................................
Rupinder S. Sidhu
/s/ ALEXIS P. MICHAS Director November 17, 1995
...................................
Alexis P. Michas
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<C> <S>
1.1 --Form of Purchase Agreement among the Registrant, the Selling Stockholders and the
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)).
3.1(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 --Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3,
1994 (incorporated by reference to Exhibit 10.1 of the Form 10-Q of the Registrant
dated July 30, 1994 (File No. 1-4844)).
4.3 --Indenture dated as of November 1, 1993 between Registrant and State Street and
Trust Company of Connecticut, National Association, as Trustee (incorporated by
reference to Exhibits 4.01 and 4.02 of the Form 8-K of the Registrant dated October
26, 1993 (File No. 1-4844)).
5.1 --Opinion and consent of Robert E. Lewis, Esq.
15.1 --Letter of KPMG Peat Marwick LLP dated November 17, 1995 re Unaudited Interim
Financial Information.
23.1 --Consent of KPMG Peat Marwick LLP dated November 17, 1995.
23.2 --Consent of Robert E. Lewis, Esq. as to the validity of the Common Stock being
registered (included in Exhibit 5.1 hereto).
24.1 --Power of Attorney (included in signature pages hereto).
</TABLE>
Exhibit 1.1
S&S Draft
11/17/95
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Eckerd Corporation
(a Delaware corporation)
2,500,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: December __, 1995
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<PAGE>
ECKERD CORPORATION
(a Delaware corporation)
2,500,000 Shares of Common Stock
Par Value $ 0.01 Per Share
PURCHASE AGREEMENT
December __, 1995
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
Raymond James & Associates, Inc.
As Representatives of the several 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
"Underwriters"), for whom you are acting as representatives (the
"Representatives"), an aggregate of 2,500,000 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"), as set
forth in the appropriate column on Schedule B, to the Underwriters. Such
shares of Common Stock, aggregating 2,500,000 shares, are to be sold to
each Underwriter, acting severally and not jointly, in such amounts as are
set forth in Schedule A opposite the name of such Underwriter. The Selling
Stockholders also grant to the Underwriters, severally and not jointly, the
option described in Section 2 to purchase all or any part of 375,000
additional shares of Common Stock to cover over-allotments. The aforesaid
2,500,000 shares of Common Stock (the "Initial Shares"), together with all
or any part of the 375,000 additional shares of Common Stock subject to the
option described in Section 2 (the "Option Shares"), are collectively
herein called the "Shares". The Shares are more fully described in the
Prospectus referred to below.
<PAGE>
2
You have advised us that you and the other Underwriters, acting
severally and not jointly, desire to purchase the Shares and that you have
been authorized by the other Underwriters 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 Shares shall be agreed upon by the Selling Stockholders and
the Representatives, acting on behalf of the several Underwriters, and such
agreement shall be set forth in a separate written instrument substantially
in the form of Exhibit A hereto (the "Price Determination Agreement"). The
Price Determination Agreement may take the form of an exchange of any
standard form of written telecommunication between the Company, the Selling
Stockholders and the Representatives and shall specify such applicable
information as is indicated in Exhibit A hereto. The offering of the
Shares will be governed by this Agreement, as supplemented by the Price
Determination Agreement. From and after the date of the execution and
delivery of the Price Determination Agreement, this Agreement shall be
deemed to incorporate, and all references herein to "this Agreement" shall
be deemed to include, the Price Determination Agreement.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(Registration No. 33-____) 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 a final prospectus 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 a
prospectus, 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 Price Determination Agreement. Additionally, if the
Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act
Regulations, the Company will prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b),
promptly after execution and delivery of the Price Determination Agreement.
The information, if any, included in such prospectus that was omitted from
the prospectus included in such registration statement at the time it
becomes effective but that is deemed, (i) 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", and (ii)
pursuant to paragraph (d) of Rule 434, to be part of such registration
statement at the time it becomes effective is referred to herein as the
"Rule 434 Information". Each prospectus used before the time such
registration statement becomes effective, and any prospectus that omits the
Rule 430A Information or the Rule 434 Information, if applicable, that is
used after such effectiveness and prior to the execution and delivery of
the Price Determination Agreement, is herein called a "preliminary
prospectus". Such registration statement, including the exhibits thereto
<PAGE>
3
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 or the Rule 434
Information, is herein called the "Original Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and the Original Registration Statement and any Rule 462(b)
Registration Statement are herein referred to collectively as the
"Registration Statement." The prospectus, including the documents
incorporated by reference therein pursuant to Item 12 and Rule 412,
included in the Original Registration Statement at the time it becomes
effective is herein called the "Prospectus", except that, (i) if the final
prospectus first furnished to the Underwriters after the execution of the
Price Determination Agreement for use in connection with the offering of
the Shares differs from the prospectus included in the Original
Registration Statement at the time it becomes effective (whether or not
such prospectus is required to be filed pursuant to Rule 424(b)), the term
"Prospectus" shall refer to the final Prospectus first furnished to the
Underwriters for such use, and (ii) if Rule 434 is relied upon, the term
"Prospectus" shall refer to the preliminary prospectus last furnished to
the Underwriters in connection with the offering of the Shares, together
with the Term Sheet.
The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Shares as soon as you
deem advisable after the Registration Statement becomes effective and the
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 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 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; (C) neither
the Prospectus 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; and (D) if
Rule 434 is relied upon, the Prospectus shall not be "materially
different", as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it becomes
effective; except that this
<PAGE>
4
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 Underwriter through you
expressly for use in the Registration Statement or the Prospectus.
(ii) The documents incorporated by reference in the Prospectus
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 Prospectus, at the time
the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Time (and, if any 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 LLP, 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) This Agreement has 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
Prospectus 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 Prospectus 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
<PAGE>
5
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 Prospectus; 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 Credit
Agreement (as defined in the Prospectus) 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
Prospectus under the heading "Capitalization"; and (b) the Shares will
conform to the description thereof contained
<PAGE>
6
or incorporated by reference in the Prospectus and such description
conforms to the rights set forth in the instruments defining the same.
(ix) The Shares to be sold by the Selling Stockholders 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 solely 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 Prospectus, 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 this Agreement
and compliance by the Company with the terms of this Agreement 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 do not 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
<PAGE>
7
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
compliance by the Company with the terms of this Agreement, except
such as have been obtained.
(xiv) Except as disclosed in the Prospectus, 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 Prospectus
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
this Agreement; the aggregate of all pending legal or governmental
proceedings that are not described in the Prospectus 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 Prospectus 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
Prospectus as owned by it, free and clear of all liens, charges or
encumbrances, except such as (A) are described in the Prospectus 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
Prospectus, 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
<PAGE>
8
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, 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
<PAGE>
9
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 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
<PAGE>
10
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, each of the Underwriters as follows:
(i) When the Registration Statement shall become effective, and
at all times subsequent thereto up to the Closing Time (and, if any
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 the
Prospectus 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 Prospectus (a copy of all such statements shall have been
previously delivered to you).
(ii) This Agreement has been duly authorized, executed and
delivered by such Selling Stockholder.
(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 this Agreement, including, without limitation, the
sale and delivery of the Shares, except such as have been obtained.
(iv) The execution and delivery of this Agreement and the
consummation by such Selling Stockholder of the transactions
contemplated in this Agreement will not, at the Closing Time (a)
result in a breach by such Selling Stockholder of, or
<PAGE>
11
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 will, at the Closing Time and, if
any Option Shares are purchased, on the Date of Delivery, be the sole
registered holder of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement, free and clear of any pledge, lien,
security interest, charge, claim, equity or encumbrance of any kind,
other than pursuant to this Agreement; such Selling Stockholder has
full right, power and authority to sell, transfer and deliver such
Shares pursuant to this Agreement; and, upon delivery of such Shares
and payment of the purchase price therefor as contemplated in this
Agreement, each of the Underwriters will receive all of such Selling
Stockholder's interest in its ratable share of 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) 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 Prospectus or other material permitted by the 1933
Act or the 1933 Act Regulations.
(vii) 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) enter into and perform this Agreement and
(B) sell and deliver the Shares to the Underwriters in accordance with
this Agreement.
(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 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
<PAGE>
12
to counsel for the Underwriters shall be deemed a representation and
warranty by the Selling Stockholders to each Underwriter as to the matters
covered thereby.
Section 2. Sale and Delivery to the Underwriters; Closing. (a)
----------------------------------------------
On the basis of the representations and warranties herein contained, and
after consultation with you as to the maximum number of Shares that may be
sold in the offering at the price set forth in the Price Determination
Agreement, and subject to the terms and conditions herein set forth, each
Selling Stockholder agrees, severally and not jointly, to sell to each
Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from each Selling Stockholder, at the purchase price per share for
the Initial Shares to be agreed upon by the Company, the Selling Stockholders
and by the Representatives in accordance with Section 2(b) or 2(c), and set
forth in the Price Determination Agreement, the number of Initial Shares
that bears the same relation to the aggregate number of Initial Shares
proposed to be sold by such Selling Stockholder and set forth opposite
such Selling Stockholder's name in the appropriate column on Schedule B as
the number of Initial aggregate Shares set forth opposite the name of such
Underwriter in Schedule A bears to the total number of Initial Shares (such
proportion is hereinafter referred to as such Underwriter's "underwriting
obligation proportion"), subject, in each case, to such adjustments as you,
in your discretion, shall make to eliminate any sales or purchases of
fractional shares. If the Company elects to rely on Rule 430A, Schedules
A and B may be attached to the Price Determination Agreement.
(b) If the Company has elected not to rely upon Rule 430A, the
price to the public per share for the Initial Shares and the purchase price
per share for the Initial Shares to be paid by the several Underwriters
shall be agreed upon and set forth in the Price Determination Agreement,
dated the date hereof, and an amendment to the Original Registration
Statement containing such per share price information will be filed before
the Original Registration Statement becomes effective.
(c) If the Company has elected to rely upon Rule 430A, the price
to the public per share for the Initial Shares and the purchase price per
share for the Initial Shares to be paid by the several Underwriters shall
be agreed upon and set forth in the Price Determination Agreement. In the
event that the Price Determination Agreement has not been executed by the
close of business on the fourteenth business day following the later of the
date on which the Original Registration Statement and any Rule 462(b)
Registration Statement becomes effective, this Agreement shall terminate
forthwith, without liability of any party to any other party except that
Sections 7, 8 and 9 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 hereby grant an option to the
Underwriters, severally and not jointly, to purchase up to the additional
number of Option Shares set forth opposite such Selling Stockholder's name
in the
<PAGE>
13
appropriate column of Schedule B, or 375,000 shares in the aggregate, in
each case, at the same purchase price per share as shall be applicable to
the Initial Shares. The option hereby granted will expire 30 days after
the later of the date upon which the Original Registration Statement and
any Rule 462(b) Registration Statement becomes effective or, if the Company
has elected to rely upon Rule 430A, the date of the 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 Shares upon
notice by you to the Company and the Selling Stockholders setting forth the
aggregate number of Option Shares as to which the several 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 options, nor in any event prior to the Closing
Time. If the option is exercised as to only a portion of the Option
Shares, the Selling Stockholders will sell their pro rata portion of the
Option Shares to be purchased by the Underwriters. If the option is
exercised as to all or any portion of the Option Shares, the Option Shares
as to which the option is exercised shall be purchased by the Underwriters,
severally and not jointly, in their respective underwriting obligation
proportions (except as otherwise provided in the 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 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, the Selling
Stockholders and you, at 10:00 A.M. either (i) on the third full business
day after the later of the effective date of the Original Registration
Statement and any Rule 462(b) Registration Statement (or if pricing of the
Shares occurs after 4:30 P.M. Eastern time, on the fourth full business day
thereafter), or (ii) if the Company has elected to rely upon Rule 430A, on
the third full business day after execution of the Price Determination
Agreement (or, if pricing of the Shares occurs after 4:30 P.M. Eastern
time, on the fourth full business day thereafter) (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 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 Option Shares are purchased by the Underwriters, payment
of the purchase price for, and delivery of certificates for, such Option
Shares shall be made at the offices of Shearman & Sterling set forth above,
or at such other place as the Company, the Selling Stockholders and you
shall determine, on the Date of Delivery as specified in the notice from
you to the Company and the Selling Stockholders. Payment shall be made to
each of the Selling Stockholders by wire transfer in next day funds or by
certified or official bank check or checks in New York Clearing House funds
payable to the order of each of the Selling Stockholders against delivery
to you for the respective accounts of the several Underwriters of
certificates for the Shares to be purchased by them.
<PAGE>
14
(f) Certificates for the Initial Shares and Option Shares to be
purchased by the Underwriters shall be in such denominations and registered
in such names as you may request in writing at least one full business day
before the Closing Time or the Date of Delivery, as the case may be. The
certificates for the Initial Shares and 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 Underwriter has authorized you,
for its account, to accept delivery of, receipt for, and make payment of
the purchase price for, the 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 Shares, or Option
Shares, to be purchased by any 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 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 Prospectus 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 Prospectus 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 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 (including any filing under Rule
462(b)), file a Term Sheet or file or make any amendment or supplement
(i) if the Company has not elected to rely upon Rule 430A, to the
Prospectus (including the documents incorporated by reference into the
Prospectus) or (ii) if the Company has elected to rely upon Rule 430A,
to either the prospectus included in the Original Registration
Statement at
<PAGE>
15
the time it becomes effective or to the Prospectus (including
documents incorporated by reference into such prospectuses or to the
Prospectus 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 Prospectus 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
Underwriter, one conformed copy of the Registration Statement as
originally filed and of each amendment thereto (including documents
incorporated by reference into the Prospectus but without exhibits).
(d) The Company will deliver to each Underwriter, without
charge, from time to time until the later of the effective date of the
Original Registration Statement and any Rule 462(b) Registration
Statement (or, if the Company has elected to rely upon Rule 430A,
until the date of the Price Determination Agreement), as many copies
of each preliminary prospectus as such 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
Underwriter, 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
Price Determination Agreement) and thereafter from time to time as
requested during the period when the Prospectus is required to be
delivered under the 1933 Act, such number of copies of the Prospectus
(as supplemented or amended) as such 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 Shares as contemplated in this Agreement and in the Prospectus.
If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the 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 Prospectus
in order that the Prospectus 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
<PAGE>
16
or amend or supplement the Prospectus 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 Prospectus comply with such
requirements.
(f) The Company will use its best efforts, in cooperation with
the 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 later of the effective
date of the Original Registration Statement any Rule 462(b)
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 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
later of the effective date of the Original Registration Statement and
any Rule 462(b) 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 Prospectus is
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 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.
<PAGE>
17
(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
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
Underwriters pursuant to this Agreement 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 Prospectus.
(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) If the Company has elected to rely on Rule 434, it will
comply with the requirements of Rule 434, and the Prospectus will not
be "materially different," as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it
becomes effective.
(m) If the Company elects to rely upon Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable fees
in accordance with Rule 111 of the 1933 Act Regulations by the earlier
of (i) 10:00 P.M. Eastern time on the date of the Price Determination
Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(n) 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 this Agreement, 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 Prospectus and any amendments
or supplements thereto, and the cost of furnishing copies thereof to the
Underwriters, (b) the preparation, printing and distribution of this
Agreement (including the Price Determination Agreement), the Shares and the
Blue Sky Survey, (c) the delivery of the Shares to the 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
<PAGE>
18
Underwriters in connection therewith and in connection with the Blue Sky
Survey; provided, however, that the Selling Stockholders will be
-------- -------
responsible for any stock transfer taxes payable upon the sale of the
Shares to the 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
Underwriters for all their out-of-pocket expenses, including the fees and
disbursements of counsel for the Underwriters.
Section 5. Conditions of Underwriters' Obligations. In addition
---------------------------------------
to the execution and delivery of the Price Determination Agreement, the
obligations of the several Underwriters to purchase and pay for the Shares
that they have respectively agreed to purchase hereunder (including any
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 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 Original Registration Statement shall have become
effective not later than 5:30 P.M. on the date of this Agreement 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 and if
the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective not later than the
earlier of (i) 10:00 P.M. Eastern time on the date of the Price
Determination Agreement, and (ii) the time confirmations are sent or
given, as specified by Rule 462(b)(2), or, with respect to the
Original Registration Statement, 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 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). If the Company has elected to
rely upon Rule 434, a Term Sheet, which together with the preliminary
prospectus last furnished to the Underwriters in connection with the
offering of the Shares shall not be "materially
<PAGE>
19
different," as such term is used in Rule 434, from the prospectus
included in the Original Registration Statement at the time it becomes
effective, shall have been filed with the Commission in accordance
with Rule 424(b).
(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 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 Prospectus.
(ii) 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".
(iii) This Agreement has been duly authorized, executed
and delivered by the Company.
(iv) 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 this Agreement, except such as have been
obtained.
(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 Prospectus 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 Prospectus or to be filed as
exhibits to the Registration Statement that are not described,
referred to or filed as required.
(vi) The statements made in the Prospectus under the caption
"Description of Capital Stock", to the extent that they
constitute matters of law
<PAGE>
20
or legal conclusions, have been reviewed by such counsel and
fairly summarize the information required to be disclosed therein
in all material respects.
(vii) The execution and delivery of this Agreement, the
sale and delivery of the Shares and compliance by the Company
with the terms of this Agreement do not and 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 do not 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 this Agreement (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 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 this Agreement and compliance by the Company with the
terms of this Agreement 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.
(viii) Such counsel has been advised by the staff of the
Commission that the Original Registration Statement became
effective under the 1933 Act on the date of this Agreement and
the Rule 462(b) Registration Statement, if any, became effective
under the 1933 Act no later than the date of the Price
Determination Agreement; any required filing of the Prospectus 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
<PAGE>
21
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are contemplated under the
1933 Act.
(ix) The Registration Statement (including the Rule 430A
Information and Rule 434 Information, if applicable) and the
Prospectus, 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 Prospectus, except as otherwise specifically
referred to in paragraph (vi) above.
Such opinion shall be to such further effect that, in connection
with the preparation of the Registration Statement and the Prospectus,
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
Underwriters and counsel for the Underwriters at which the contents of
the Registration Statement and the Prospectus 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
Prospectus and has made no independent check or verification thereof
except as otherwise specifically referred to in paragraph (vi) 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 and Rule 434
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 Prospectus 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
<PAGE>
22
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 this Agreement and the sale of the
Shares by the Company pursuant to this Agreement 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 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 Robert E. Lewis, Esq., Vice President/General Counsel for
the Company, dated as of the Closing Time, together with signed or
reproduced copies of such opinion for each of the other Underwriters,
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 Prospectus, 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
<PAGE>
23
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 solely 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 Prospectus 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 Prospectus 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 Prospectus 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 Prospectus 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 this Agreement, the
sale and delivery of the Shares and compliance by the Company
with the terms of this Agreement 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
<PAGE>
24
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 this Agreement
and compliance by the Company with the terms of this Agreement
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) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus 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 this Agreement, the sale and delivery of the Shares
and compliance by the Company with the terms of this Agreement 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).
(xii) The documents incorporated by reference in the
Prospectus (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 Prospectus 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
<PAGE>
25
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
Prospectus, except as otherwise specifically referred to in
paragraph (ix) above.
Such opinion shall be to such further effect that in connection
with the preparation of the Registration Statement and the Prospectus
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 Prospectus 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
Prospectus 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 and Rule 434
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 Prospectus 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 this Agreement and the sale of the
Shares pursuant to this Agreement 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 Florida, 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 Underwriters and state that such other counsel believes
<PAGE>
26
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 Florida and does not purport to be an expert on
any law other than the laws of the State of Florida 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 the attorneys listed on Schedule D attached hereto for the Selling
Stockholders specified opposite such attorney's name, each dated as of
the Closing Time, together with signed or reproduced copies of such
opinion for each of the other 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 this
Agreement has been duly and validly authorized by the Selling
Stockholders.
(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 this Agreement.
(iii) The execution and delivery of this Agreement 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
<PAGE>
27
necessary power and authority under such laws to execute, deliver
and perform this Agreement.
(v) Assuming that each of the Underwriters acquires the
certificates representing the Shares to be sold by the Selling
Stockholders in good faith and without notice of any adverse
claims, as defined in Section 8-302 of the Uniform Commercial
Code as in effect in the State of New York (the "UCC"), upon
delivery of the certificates representing such Shares to the
person designated by the Underwriters in the State of New York,
registered in the name of the Underwriters, endorsed to the
Underwriters, or endorsed in blank, the Underwriters will acquire
all of the Selling Stockholders' rights in the certificates
representing such Shares free of any adverse claims (within the
meaning of Section 8-302 of the UCC).
Such opinion shall be to such further effect that, such counsel
has examined (a) the stock records (or a certified copy of such stock
records) of the Company as of the date immediately preceding the
Closing Time (the "Stock Record"), as maintained by the Company's
Registrar and Transfer Agent (the "Registrar") and a certificate of
the Registrar dated the Closing Time (the "Registrar's Certificate")
to the effect that, with respect to the Selling Stockholders, there
has been no changes to the Stock Record, and (b) certificates
representing the Shares to be sold by the Selling Stockholders
pursuant to this Agreement (the "Share Certificates") and that, based
solely on such counsel's examination of the Stock Record, the
Registrar's Certificate and the Share Certificates, except as
described in such counsel's opinion, each Selling Stockholder is the
sole registered owner of such Selling Stockholder's Share
Certificates.
Such opinion shall be to such further effect with respect to
other legal matters relating to this Agreement and the sale of the
Shares pursuant to this Agreement 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 and partnership 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 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. To the
extent that any of the above opinions are governed by the laws of the
State of Oklahoma, such counsel may also state that it has assumed
that the Oklahoma Revised Uniform Limited
<PAGE>
28
Partnership Act is identical to the Delaware Revised Uniform Limited
Partnership Act.
(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 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 this
Agreement except, specifying the same, to the extent waived by you,
and with respect to the incorporation and legal existence of the
Company, the Shares, this Agreement, the Registration Statement, the
Prospectus, 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 Underwriters.
(f) At the Closing Time, (i) the Registration Statement and the
Prospectus, 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 Rule 434 (if it shall
have elected to rely thereon) and neither the Registration Statement
nor the Prospectus, 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 Prospectus, 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 Prospectus 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 Prospectus, (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
<PAGE>
29
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 Executive Vice President/Chief Financial Officer, 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 that there have been no
changes or amendments to the certificate of incorporation, by-laws,
partnership agreement or other comparable governing document of such
Selling Stockholder since August 2, 1995 and as to the accuracy and
completeness of the attached resolutions of the board of directors
regarding the sale and delivery of the Shares and the authorization,
execution and delivery of this Agreement.
(h) At the time that this Agreement is executed, you shall have
received from KPMG Peat Marwick LLP 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 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:
(i) in their opinion, the audited financial statements and
the related financial statement schedules included or
incorporated by reference in the Registration Statement and the
Prospectus 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 for the 13-week
periods ended April 29, 1995 and April 30, 1994 and for the 13-
week and 26-week periods ended July 29, 1995 and July 30, 1994
included or incorporated by reference in the Registration
Statement and the Prospectus (the "10-Q Financials"), a reading
of the unaudited interim consolidated financial statements of the
Company for the thirteen-week and thirty-nine week periods ended
October 28, 1995 and October 27, 1994 included or incorporated by
reference in the Registration Statement and the Prospectus (the
<PAGE>
30
"Nine-Month Financials"), 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
January 28, 1995, inquiries of certain officials of the Company
and the Subsidiaries responsible for financial and accounting
matters, 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) the 10-Q Financials incorporated by reference in
the Registration Statement and the Prospectus do not comply
as to form in all material respects with the applicable
accounting requirements of the 1934 Act and the 1934 Act
Regulations applicable to unaudited financial statements
included in Form 10-Q or any material modifications should
be made to the 10-Q Financials incorporated by reference in
the Registration Statement and the Prospectus for them to be
in conformity with generally accepted accounting principles;
(B) the Nine-Month Financials included in the
Registration Statement and the Prospectus do not comply as
to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act
Regulations applicable to unaudited interim financial
statements included in registration statements or any
material modifications should be made to the Nine-Month
Financials included in the Registration Statement and the
Prospectus for them to be in conformity with generally
accepted accounting principles;
(C) at October 28, 1995 and at a specified date not
more than five days prior to the date of this Agreement,
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
(D) for the period from July 30, 1995 to October 28,
1995 and for the period from July 30, 1995 to a specified
date not more than five days prior to the date of this
Agreement, 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
<PAGE>
31
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 Historical Financial Data
included in the Registration Statement, nothing has come to their
attention that gives them reason to believe that the Selected
Historical 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 Financial Data (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
as to 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
<PAGE>
32
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 LLP 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 this Agreement 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 this
Agreement 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 Selling Stockholder 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 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 Option Shares. In the
---------------------------------------
event that the Underwriters exercise their option granted in Section 2
hereof to purchase all or any of the 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 Underwriters to purchase and pay for
the 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
<PAGE>
33
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 Executive Vice President/Chief Financial Officer, 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, Robert E. Lewis, Esq., Vice President/General
Counsel for the Company, and the attorneys listed on Schedule D
attached hereto for the Selling Stockholders, together with signed or
reproduced copies of such opinions for each of the other 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 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 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 LLP, 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(h), 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
<PAGE>
34
certificates furnished to you pursuant to Section 5(g), 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
this Agreement 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 this Agreement 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 agrees to
---------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls any 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, 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) 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 Prospectus (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 Underwriter and each
person, if any, who controls any 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 and the Rule 434 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 Prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements
<PAGE>
35
therein, in the light of the circumstances under which they were made,
not misleading, or if Rule 434 is used, if the Prospectus is
"materially different", as such term is used in Rule 434, from the
prospectus included in the Original Registration Statement at the time
it becomes effective;
(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 Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (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 Underwriter
(or any person controlling such Underwriter) from whom the person asserting
any such losses, claims, damages or liabilities purchased any of the Shares
if a copy of the Prospectus (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 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 Prospectus (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 pursuant to this Section 7 is limited to the amount of the net
proceeds of the offering of the Shares (after deducting the underwriting
discount, but before deducting expenses) received by such Selling
Stockholder.
<PAGE>
36
Insofar as this indemnity agreement may permit indemnification
for liabilities under the 1933 Act of any person who is a partner of an
Underwriter or who controls an 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 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 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 and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or such
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) The Company agrees to indemnify and hold harmless, to the
extent permitted by law, each Selling Stockholder, its directors and
officers or general and limited partners (and the directors and officers
thereof), and each other person, if any, who controls such Selling
Stockholder within the meaning of the 1933 Act, against any and all losses,
claims, damages or liabilities, joint or several, and expenses (including
any amounts paid in any settlement effected with the Company's consent) to
which such Selling Stockholder, any such director or officer or general or
limited partner or controlling person may become subject under the 1933
Act, common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434 Information,
if applicable, and all documents incorporated therein by reference, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, together with the
documents incorporated by reference therein (as amended or supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto), if used prior to the effective date of the
Registration Statement, or contained in the Prospectus (as amended or
supplemented if the Company shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission or alleged
<PAGE>
37
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) any
violation by the Company of any federal, state or common law rule or
regulation applicable to the Company and relating to action required of or
inaction by the Company in connection with the offering, and the Company
will reimburse each such Selling Stockholder and each such director,
officer, general or limited partner, and controlling person for any legal
or any other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, that the Company shall not be liable to such Selling
--------
Stockholder or any such director, officer, general or limited partner or
controlling person in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement (or any amendment or supplement thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or in any such
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Selling Stockholder or any
such director, officer, general or limited partner or controlling person,
specifically stating that it is for use in the preparation thereof.
(d) Each Selling Stockholder agrees to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
7(c)) the Company and its directors and officers and each person
controlling the Company within the meaning of the 1933 Act and all other
Selling Stockholders and their directors, officers, general and limited
partners and respective controlling persons with respect to any statement
or alleged statement in or omission or alleged omission from the
Registration Statement (or any amendment or supplement thereto), including
the Rule 430A Information and the Rule 434 Information, if applicable, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), if such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf
of the undersigned specifically stating that it is for use in the
preparation of the Registration Statement (or any amendment or supplement
thereto), including the Rule 430A Information and the Rule 434 Information,
if applicable, preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or a document incorporated by reference into any of
the foregoing; provided, however, that the liability of each Selling
-------- -------
Stockholder pursuant to this Section 7(d) is limited to the proceeds
received by such Selling Stockholder from the sale of the Shares pursuant
to this Agreement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any
of the other Selling Stockholders or any of its respective directors,
officers, general or limited partners or controlling persons and shall
survive the transfer of the Shares by each Selling Stockholder.
<PAGE>
38
(e) 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 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 Underwriters, as incurred, in such
proportions that (a) the Underwriters are responsible for that portion
represented by the percentage that the underwriting discount appearing on
the cover page of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, 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 Underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such 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
<PAGE>
39
Stockholders and the Company or its officers set forth in or made pursuant
to this Agreement 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 Underwriter or any person who controls a
Selling Stockholder, the Company or any Underwriter within the meaning of
Section 15 of the 1933 Act and will survive delivery of and payment for the
Shares.
Section 10. Termination of Agreement. (a) You may terminate
------------------------
this Agreement, by notice to the Company and each of the Selling
Stockholders, 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 Shares or enforce contracts for the sale of the
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.
Section 11. Default by One or More of the Underwriters. If one
------------------------------------------
or more of the Underwriters shall fail at the Closing Time to purchase the
Initial Shares that it or they are obligated to purchase pursuant to this
Agreement (the "Defaulted Shares"), you shall have the right, within 24
hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted 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:
<PAGE>
40
(a) if the number of Defaulted Shares does not exceed 10% of the
total number of Initial Shares, the non-defaulting 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 Underwriters, or
(b) if the number of Defaulted Shares exceeds 10% of the total
number of Initial Shares, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any
defaulting 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
Prospectus or in any other documents or arrangements. As used herein, the
term "Underwriter" includes any person substituted for an Underwriter under
this Section 11.
Section 12. Default by a Selling Stockholder. If any Selling
---------------------------------
Stockholder selling at least 90,000 Shares shall fail at the Closing Time
to sell and deliver the number of Initial Shares that such Selling
Stockholder is obligated to sell, then the Underwriters may, at your
option, by notice from you to the Company and each of the Selling
Stockholders, 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 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 Prospectus 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
-------
this Agreement 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 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,
<PAGE>
41
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: Robert E. Lewis, Esq., Vice President/General Counsel 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 shall be directed to James V. Caruso, Merrill Lynch & Co.,
Merrill Lynch World Headquarters, South Tower, World Financial Center, New
York, New York 10080-6123; a copy of all notices to any Selling Stockholder
shall be provided to Shearman & Sterling, 599 Lexington Avenue, New York,
New York 10022, Attention: Rohan S. Weerasinghe.
Section 14. Parties. This Agreement is made solely for the
-------
benefit of the several 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 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 Underwriters of the Shares. All of the obligations of the
Underwriters hereunder are several and not joint.
Section 15. Representation of Underwriters. You will act for
------------------------------
the several 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 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.
----------------------------------------
<PAGE>
42
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 Underwriters in accordance with its
terms.
Very truly yours,
ECKERD CORPORATION
By
-------------------------------------------
Name: Robert E. Lewis
Title: Vice President/General Counsel
On behalf of the Selling Stockholders named
in Schedule B in the capacity as set forth in
Schedule E
By
-------------------------------------------
Name: James V. Caruso
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
CS FIRST BOSTON CORPORATION
MORGAN STANLEY & CO. INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
----------------------------
Name: Karen Harris
Title: Vice President
For themselves and as Representatives of the
- --------------------------------------------
other Underwriters named in Schedule A.
- ---------------------------------------
<PAGE>
SCHEDULE A
Number of
Underwriters Initial Shares
------------ --------------
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
Raymond James & Associates, Inc.
[syndicate list]
_________
TOTAL 2,500,000
=========
<PAGE>
SCHEDULE B
Number of Number of
Initial Option
Selling Stockholder Shares Shares
------------------- ------- -------
Merrill Lynch Capital Appreciation
Partnership No. II, L.P.
ML Offshore LBO Partnership No. II
Merrill Lynch Capital Appreciation
Partnership No. B-IX, L.P.
ML Offshore LBO Partnership No. B-
IX
ML IBK Positions, Inc.
Merrill Lynch Capital Corporation
ML Employee LBO Partnership No. I,
L.P.
MLCP Associates L.P., No. II
Merrill Lynch KECALP L.P. 1986
Merrill Lynch KECALP L.P. 1989
Merchant Banking L.P. No. IV
--------- -------
TOTAL 2,500,000 375,000
----- ========= =======
<PAGE>
SCHEDULE C
List of the Subsidiaries
Clorwood Distributors, Inc., a Florida corporation.
Eckerd Consumer Products, Inc., a Florida corporation.
Eckerd Corporation of Florida, 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.
Life Care Medical Products, Inc., a Florida corporation (5l% owned)
P.C.V., Inc., a Florida corporation.
E.T.B., Inc., a Texas corporation (49% owned)
<PAGE>
SCHEDULE D
Attorney Selling Stockholder
Marcia L. Tu, Esq. - ML IBK Positions, Inc.
- Merrill Lynch Capital Appreciation Partnership
No. II, L.P.
- ML Offshore LBO Partnership No. II
- ML Employees LBO Partnership No. I, L.P.
- MLCP Associates L.P. No. II
- ML Offshore LBO Partnership No. B-IX
- Merrill Lynch Capital Appreciation Partnership
No. B-IX, L.P.
Margaret E. Nelson, Esq. - Merrill Lynch KECALP L.P. 1986
- Merrill Lynch KECALP L.P. 1989
David Dick, Esq. - Merchant Banking L.P. No. IV
Jim Rossi, Esq. - Merrill Lynch Capital Corporation
<PAGE>
SCHEDULE E
Merrill Lynch Capital Appreciation MLCP Associates L.P. No. II
Partnership No. II, L.P. By: Merrill Lynch Capital Partners,
By: Merrill Lynch LBO Partners, No.I, Inc., General Partner
L.P., General Partner
By: Merrill Lynch Capital Partners, By: James V. Caruso
Inc., General Partner Title: Vice President
By: James V. Caruso Merrill Lynch KECALP L.P. 1986
Title: Vice President By: KECALP Inc., General Partner
ML Offshore LBO Partnership No. II By: James V. Caruso
By: Merrill Lynch LBO Partners, No.I, Title: Vice President
L.P., General Partner
By: Merrill Lynch Capital Partners, Merrill Lynch KECALP L.P. 1989
Inc., General Partner By: KECALP Inc., General Partner
By: James V. Caruso By: James V. Caruso
Title: Vice President Title: Vice President
Merrill Lynch Capital Appreciation Merchant Banking L.P. No. IV
Partnership No. B-IX, L.P. By: Merrill Lynch MBP Inc.,
By: Merrill Lynch LBO Partners General Partner
No. B-II, L.P., General Partner
By: Merrill Lynch Capital Partners, By: James V. Caruso
Inc., General Partner Title: Vice President
By: James V. Caruso Merrill Lynch Capital Corporation
Title: Vice President
By: James V. Caruso
ML Offshore LBO Partnership Title: Attorney-in-fact
No. B-IX
By: Merrill Lynch LBO Partners,
No. B-II, L.P., General Partner
By: Merrill Lynch Capital Partners,
Inc., General Partner
By: James V. Caruso
Title: Vice President
ML IBK Positions, Inc.
By: James V. Caruso
Title: Vice President
ML Employee LBO Partnership
No. I, L.P.
By: James V. Caruso
Title: Vice President
<PAGE>
EXHIBIT A
<PAGE>
Eckerd Corporation
(a Delaware corporation)
2,500,000 Shares of Common Stock
PRICE DETERMINATION AGREEMENT
December __, 1995
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
Raymond James & Associates, Inc.
As Representatives of the several 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 Purchase Agreement dated December __, 1995
(the "Purchase Agreement") among Eckerd Corporation (the "Company"),
the Selling Stockholders named in Schedule B thereto or hereto (the
"Selling Stockholders") and the several Underwriters named in Schedule A
thereto or hereto (the "Underwriters"), for whom Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS First Boston
Corporation, Morgan Stanley & Co. Incorporated and Raymond James &
Associates, Inc. are acting as representatives (the "Representatives").
The Purchase Agreement provides for the purchase by the Underwriters from
the Selling Stockholders, subject to the terms and conditions set forth
therein, of an aggregate of 2,500,000 shares (the "Initial Shares") of the
Company's common stock, par value $ 0.01 per share. This Agreement is the
Price Determination Agreement referred to in the Purchase Agreement. Terms
not defined herein are used herein as defined in the Purchase Agreement.
<PAGE>
2
Pursuant to Section 2 of the Purchase Agreement, the undersigned
agree with the Representatives as follows:
1. The price to public per share for the Initial Shares shall
be $_____.
2. The purchase price per share for the Initial Shares to be
paid by the several 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 Underwriters
that the representations and warranties of the Company set forth in
Section 1(a) of the Purchase Agreement are accurate as though expressly
made at and as of the date hereof.
Additionally, if the Company elects to rely on Rule 462(b), the
Company covenants to each of the Underwriters that:
(a) the Company will file a Rule 462(b) Registration Statement in
compliance with, and that is effective upon filing pursuant to,
Rule 462(b) prior to the time confirmations are sent or given, as
specified in Rule 462(b) of the 1933 Act; and
(b) the Company will give irrevocable instructions for transmission
of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111
of the 1933 Act Regulations or the Commission will have received
payment of such filing fee upon filing of the Rule 462(b)
Registration Statement.
Each Selling Stockholder represents and warrants to each of the
Underwriters that the representations and warranties of such Selling
Stockholder set forth in Section 1(b) of the 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 Underwriters and as
Schedule B is a completed list of the Selling Stockholders, which shall be
a part of this Agreement and the Purchase Agreement.
This Agreement shall be governed by the laws of the State of
New York.
------------------------------------------
<PAGE>
If the foregoing is in accordance with the understanding of the
Representatives of the agreement between the Underwriters, the Company and
the Selling Stockholders, please sign and return to the Company and the
Selling Stockholders a counterpart hereof, whereupon this instrument along
with all counterparts and together with the Purchase Agreement shall be a
binding agreement between the Underwriters, the Company and the Selling
Stockholders in accordance with its terms and the terms of the Purchase
Agreement.
Very truly yours,
ECKERD CORPORATION
By
----------------------------
Name: Robert E. Lewis
Title: Vice President/General Counsel
On behalf of the Selling Stockholders named
in Schedule B in the capacity as set forth in
Schedule E
By
----------------------------
Name: James V. Caruso
<PAGE>
Confirmed and accepted as of
the date first above written:
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
CS FIRST BOSTON CORPORATION
MORGAN STANLEY & CO. INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
By: Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By
---------------------------------
Name: Karen Harris
Title: Vice President
For themselves and as Representatives of the
- --------------------------------------------
other Underwriters named in Schedule A
- --------------------------------------
<PAGE>
Exhibit B
<PAGE>
LOCK-UP LETTER AGREEMENT
------------------------
December __, 1995
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
CS First Boston Corporation
Morgan Stanley & Co. Incorporated
Raymond James & Associates, Inc.
As Representatives of the several 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
Dear Sirs:
The undersigned stockholder of Eckerd Corporation, a Delaware
corporation (the "Company"), understands that a Purchase Agreement (the
"Purchase Agreement") will be executed by the Company, the Selling
Stockholders named therein (the "Selling Stockholders") and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS First Boston
Corporation, Morgan Stanley & Co. Incorporated and Raymond James &
Associates, Inc., as representatives (the "Representatives") of the several
underwriters named therein (the "Underwriters"), pursuant to which the
Selling Stockholders will sell to the Underwriters 2,500,000 shares of the
Common Stock, par value $.01 per share (the "Common Stock"), of the Company
and up to 375,000 additional shares of Common Stock pursuant to an option
granted by the Selling Stockholders, solely to cover over-allotments as set
forth in the Purchase Agreement.
The undersigned is a party to that certain Registrations Rights
Agreement (the "Registration Rights Agreement"), dated as of April 30, 1986
and amended by the First Amendment thereto dated as of November 21, 1990,
by and among the Company and the stockholders named therein. This Lock-Up
Letter Agreement is being entered into in accordance with Section 7(a) of
the Registration Rights Agreement at the request of the Underwriters.
<PAGE>
2
The undersigned also understands that the Company has filed with the
Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-3 (File No. 33-______, the "Registration Statement") in
connection with the public offering (the "Offering") of shares of its
Common Stock.
In consideration of the Underwriters' agreement to purchase the Common
Stock and undertake the Offering, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned
agrees not to directly or indirectly effect any public sale or
distribution, including any sale pursuant to Rule 144 under the Securities
Act of 1933, as amended, of any shares of Common Stock (including, without
limitation, shares of Common Stock which may be deemed to be beneficially
owned by such stockholder in accordance with the rules and regulations of
the Commission and shares of Common Stock which may be issued upon exercise
of any option or warrant) or any securities convertible or exchangeable for
shares of Common Stock for a period commencing 7 days prior to the date the
Registration Statement is declared effective by the Commission (the
"Effective Date") and ending 120 days after the Effective Date, other than
the Shares sold to the Underwriters pursuant to the Purchase Agreement and
shares of Common Stock traded on the New York Stock Exchange, Inc. The
undersigned understands that the Company expects the Effective Date to
occur as early as ______, 1995. The undersigned understands that the
Effective Date may, however, be earlier or later than _____, 1995.
In addition, the undersigned agrees that the undersigned will, promptly
following the execution of this Lock-Up Letter Agreement and in any event
prior to the execution of the Purchase Agreement, (i) with respect to any
shares of Common Stock for which the undersigned is the record holder,
cause the transfer agent for the Company to note stop transfer instructions
with respect to such shares of Common Stock on the transfer books and
records of the Company and (ii) with respect to any shares of Common Stock
for which the undersigned is the beneficial holder but not the record
holder (other than the shares of Common Stock owned of record by persons or
entities that are not affiliates of the undersigned and shares of Common
Stock which may be issued upon exercise of any option or warrant), cause
the record holder of such shares to cause the transfer agent for the
Company to note stop transfer instructions with respect to such shares of
Common Stock on the transfer books and records of the Company.
The undersigned understands that the Company, the Selling Stockholders
and the Underwriters will proceed with the Offering in reliance on this
Lock-Up Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to enter into this Lock-Up Letter Agreement and
that, upon request, the undersigned will execute any additional documents
necessary or desirable in connection
<PAGE>
3
with the enforcement hereof. Any obligations of the undersigned shall be
binding upon the successors and assigns of the undersigned.
This Lock-Up Letter Agreement has been entered into on the date first
written above.
Very truly yours,
----------------------------------------
Name of Stockholder
By:
-------------------------------------
Name:
Title:
Exhibit 5.1
November 17, 1995
Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 34647
Ladies and Gentlemen:
I am Vice President/General Counsel for Eckerd Corporation, a
Delaware corporation (the "Company"). I am providing the opinion set forth
herein in connection with the preparation of a registration statement on
Form S-3 (the "Registration Statement"), being filed by the Company with
the Securities and Exchange Commission (the "Commission") on the date
hereof.
The Registration Statement relates to the registration by the
Company under the Securities Act of 1933, as amended (the "Act"), of up to
2,875,000 shares of Common Stock of the Company, par value $.01 per share
(the "Common Stock"), and the sale of (i) 2,500,000 shares of Common Stock
(the "Firm Shares") by certain stockholders of the Company (the "Selling
Stockholders") and (ii) up to 375,000 shares of Common Stock subject to an
option given to the Underwriters (as defined below) by the Selling Stock-
holders solely to cover over-allotments, if necessary (the "Option Shares"
and, together with the Firm Shares and any shares to be sold by the
Selling Stockholders which are registered on a registration statement filed
by the Company pursuant to Rule 462(b) of the General Rules and Regulations
under the Act, the "Shares"), to the public through a syndicate of under-
writers in a firm commitment public offering pursuant to a Purchase Agree-
ment (the "Purchase Agreement") in the form filed herewith as Exhibit 1.1
to the Registration Statement, to be entered into by and among the Company,
the Selling Stockholders and Merrill Lynch & Co., CS First Boston
Corporation, Morgan Stanley & Co. Incorporated and Raymond James & Associ-
ates, Inc., acting severally on behalf of themselves and the several Under-
writers named therein (the "Underwriters").
This opinion is being delivered in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the Act.
<PAGE>
Eckerd Corporation
November 17, 1995
Page 2
In connection with this opinion, I have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement; (ii) the form of the Purchase Agreement; (iii) the
Company's Restated Certificate of Incorporation, as in effect as of the
respective issue dates of the Shares; (iv) the Company's Amended and Re-
stated By-laws, as in effect as of the respective issue dates of the
Shares; (v) the resolutions of the Board of Directors of the Company
relating to, among other things, the issuance of the Shares and the regis-
tration of the Shares under the Act; (vi) the form of a specimen certif-
icate representing the Shares; and (vii) such other documents as I have
deemed necessary or appropriate as a basis for the opinions set forth
below. I have also examined originals or copies, certified or otherwise
identified to my satisfaction, of such records of the Company and such
agreements, certificates of public officials, certificates of officers or
other representatives of the Company and others, and such other documents,
certificates and records as I have deemed necessary or appropriate as a
basis for the opinion set forth herein.
In my examination, I have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to me as originals, the conformity to original docu-
ments of all documents submitted to me as certified or photostatic copies
and the authenticity of the originals of such latter documents. In making
my examination of documents executed by parties other than the Company, I
have assumed that such parties had the power, corporate or other, to enter
into and perform all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, and the
execution and delivery by such parties of such documents and the validity
and binding effect thereof. As to any facts material to the opinions ex-
pressed herein which were not independently established or verified, I have
relied upon oral or written statements and representations of officers and
other representatives of the Company and others.
I am admitted to practice law in the State of Florida and I do
not purport to be an expert on any law other than the laws of the State of
Florida and the laws of the United States of America. Insofar as the opin-
ions contained herein relate to the general corporate law of the State of
Delaware, I have made such investigation of such laws as I have deemed
necessary as a basis for such opinions.
<PAGE>
Eckerd Corporation
November 17, 1995
Page 3
Based upon and subject to the foregoing and assuming (i) the
conformity of the certificates representing the Shares to the form of the
specimen thereof examined by me and the due execution and delivery of such
certificates and (ii) that the Company has received the full consideration
for the Shares, I am of the opinion that the Shares are duly authorized,
validly issued, fully paid and nonassessable.
I hereby consent to the use of my name in the Registration State-
ment under the caption "Legal Matters" and to the filing of this opinion as
an Exhibit to the Registration Statement. I further consent to the incor-
poration of this opinion by reference as an exhibit to any registration
statement relating to the offering of the Shares which is filed pursuant to
Rule 462(b) of the General Rules and Regulations under the Act and to the
use of my name under the caption "Legal Matters" in the prospectus included
in or incorporated by reference in any such registration statement. In
giving such consent, I do not admit that I came within the category of
persons whose consent is required under Section 7 of the Act or the rules
and regulations of the Commission thereunder.
Very truly yours,
/s/ Robert E. Lewis
Robert E. Lewis
Vice President/General Counsel
Eckerd Corporation
Exhibit 15.1
Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 34647
Gentlemen:
Re: Registration Statement on Form S-3 of Eckerd Corporation
With respect to the subject registration statement, we acknowledge our
awareness of the incorporation by reference therein of our reports dated
June 10, 1995 and September 7, 1995 related to our reviews of interim
financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933 (the "Act"), such
reports are not considered a part of a registration statement prepared or
certified by an accountant or a report prepared or certified by an
accountant within the meaning of sections 7 and 11 of the Act.
Very truly yours,
/s/ KPMG Peat Marwick LLP
Tampa, Florida
November 17, 1995
Exhibit 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Eckerd Corporation and Subsidiaries
We consent to the use of our audit report dated March 20, 1995 on the
consolidated financial statements of Eckerd Corporation and Subsidiaries
included in its Annual Report on Form 10-K 405 as of January 28, 1995 and
January 29, 1994, and the fiscal year ended January 28, 1995, January 29,
1994 and January 30, 1993, incorporated by reference into the Prospectus
(the "Prospectus"), which forms a part of the Registration Statement on
Form S-3 of the Company originally filed on the date hereof, and to the
reference to this firm under the heading "Experts" in the Prospectus.
Our report refers to a change in accounting policy related to the timing of
the recognition of closed store obligations.
/s/ KPMG Peat Marwick LLP
Tampa, Florida
November 17, 1995
