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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13D
(Rule 13d-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
ARBOR DRUGS, INC.
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(Name of Issuer)
COMMON STOCK
$0.01 PAR VALUE
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(Title of Class of Securities)
038760 10 4
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(CUSIP Number)
Charles Conaway
Chief Financial Officer
CVS Corporation
One CVS Drive
Woonsocket, Rhode Island 02895
(401) 765-1500
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
February 8, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this Schedule because of Rule 13d-1(b)(3) or (4), check the following
box: [ ]
Note: Six copies of this Statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
(Continued on following pages)
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CUSIP No. 13D
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
CVS CORPORATION (I.R.S. Identification Number 05-0494040)
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
Not Applicable
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
NUMBER 7 SOLE VOTING POWER
OF SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 14,528,521 (see Item 6)
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH 10 SHARED DISPOSITIVE POWER
13,928,521 (see Item 6)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
14,528,521 (see Item 6)
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
24.5%
14 TYPE OF REPORTING PERSON
CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!*
Item 1. Security and Issuer
The class of equity securities to which this statement relates
is the common stock, $0.01 par value per share (the "Common Stock"), of Arbor
Drugs, Inc., a Michigan corporation (the "Issuer"). The principal executive
offices of the Issuer are located at 3331 West Big Beaver, Troy, Michigan
48084.
Item 2. Identity and Background
The name of the person filing this statement is CVS
Corporation, a Delaware corporation ("CVS").
The address of the principal business and the principal office
of CVS is One CVS Drive, Woonsocket, Rhode Island 02895. The name, business
address, present principal occupation or employment, and citizenship of each
director and executive officer of CVS is set forth on Schedule A.
CVS is a leading United States retail chain drugstore company.
On February 8, 1998, CVS entered into an Agreement and Plan of Merger with the
Issuer and Red Acquisition, Inc., as described in Item 6. In connection
therewith, CVS entered into an Option and Voting Agreement with Eugene
Applebaum Living Trust, Marcia C. Applebaum, Trust for the Benefit of Lisa S.
Applebaum and Trust for the Benefit of Pamela A. Applebaum (collectively, the
"Applebaum Stockholders"), as described in Item 6.
During the last five years, neither CVS nor any other person
controlling CVS nor, to the best of its knowledge, any of the persons listed
on Schedule A attached hereto, has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or has been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or
finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
Inapplicable.
Item 4. Purpose of Transaction
See Item 6.
Item 5. Interest in Securities of the Issuer
(a) For the purpose of Rule 13d-3 promulgated under the
Exchange Act, CVS has shared voting power and/or shared dispositive
power with respect to (and therefore beneficially owns) 14,528,521
shares of Common Stock, representing approximately 24.5% of the
outstanding shares of Common Stock. Except as set forth in Item 5,
neither CVS nor any other person controlling CVS, nor, to the best of
its knowledge after reasonable inquiry, any director or executive
officer of CVS owns beneficially any shares of Common Stock.
(b) CVS does not have sole power to vote or to direct the vote
of any shares of Common Stock. CVS does not have sole power to
dispose or to direct the disposition of any shares of Common Stock.
CVS has shared power to vote or to direct the vote of the 14,528,521
shares of Common Stock presently held by the Applebaum Stockholders.
CVS has shared power to dispose or to direct the disposition of the
13,928,521 shares of Common Stock presently held by the Applebaum
Stockholders.
The Applebaum Stockholders are the individual members of the family
of Eugene Applebaum and trusts for their benefit. The principal
business address of the Applebaum Stockholders is 3331 West Big
Beaver Road, Troy, Michigan 48007. During the last five years, to the
best knowledge of CVS after reasonable inquiry, the Applebaum
Stockholders have not been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) and have not
been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction that resulted in any of them being
subjected to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with
respect to such laws.
(c) Information concerning transactions in shares of Common Stock by the
persons named in paragraph (a) since December 18, 1997 is set forth
on Schedule B.
(d) Inapplicable.
(e) Inapplicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer
On February 8, 1998, CVS, the Issuer and Red Acquisition, Inc.
entered into an Agreement and Plan of Merger (the "Merger Agreement")
providing for, subject to the terms and conditions set forth in the Merger
Agreement, the merger of Red Acquisition, Inc., a wholly- owned direct
subsidiary of CVS, with and into the Issuer, with the Issuer to be the
surviving corporation in the merger. As a result of the merger, the Issuer
would become a wholly-owned direct subsidiary of CVS. Consummation of the
merger is subject to approval by the stockholders of the Issuer, the
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and certain other customary
closing conditions.
As an inducement and a condition to CVS entering into the
Merger Agreement, the Applebaum Stockholders entered into an Option and
Voting Agreement with CVS dated as of February 8, 1998 (the "Option and Voting
Agreement"). Pursuant to the Option and Voting Agreement, the Applebaum
Stockholders have granted CVS an irrevocable option (the "Option") to purchase
all shares of Common Stock owned or subsequently acquired by the Applebaum
Stockholders (the "Shares") at an exercise price of $23 per share (other than
600,000 shares of Common Stock). The Option may be exercised by CVS in whole
but not in part within one year after termination of the Merger Agreement in
the event that the Merger Agreement is terminated in certain specified
circumstances. CVS may pay for the Shares in cash or shares of CVS common
stock. The Applebaum Stockholders have also agreed, among other things, to
vote the Shares in favor of the approval and adoption of the merger and the
Merger Agreement.
The Option and Voting Agreement provides that the Applebaum
Stockholders will not, among other things, directly or indirectly: (i) offer
for sale, sell, transfer, tender, pledge, encumber (other than by operation of
law), assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein; (ii) except
as contemplated by the Option and Voting Agreement, grant any proxies or
powers of attorney, deposit the Shares into a voting trust or enter into a
voting agreement with respect to the Shares; or (iii) take any action that
would make any representation or warranty of the Applebaum Stockholders
contained in the Option and Voting Agreement untrue or incorrect or would
result in a breach by the Applebaum Stockholders of their obligations
thereunder or a breach by the Issuer of its obligations under the Merger
Agreement. In addition, the Applebaum Stockholders have agreed not to take
certain actions with respect to solicitation of offers to acquire the Issuer
or a portion of its business. CVS has agreed to indemnify each Applebaum
Stockholder against certain liabilities.
In addition, the Applebaum Stockholders have agreed to enter
into a letter agreement (the "Letter Agreement") with CVS and the Issuer
pursuant to which the Applebaum Stockholders may not sell, transfer or
otherwise dispose of its interests in, or acquire or sell any options or other
securities relating to, securities of CVS or the Issuer that would be intended
to reduce its risk relative to any shares of common stock of either CVS or the
Issuer beneficially owned by it, during the period commencing on the 30th day
prior to the Effective Time and ending at such time as CVS publicly releases a
report covering at least 30 days of combined operations of CVS after the
merger.
The summary contained in this Schedule 13D of certain
provisions of the Option and Voting Agreement, the Merger Agreement and the
Letter Agreement is qualified in its entirety by reference to the Option and
Voting Agreement, the Merger Agreement and the Letter Agreement attached as
Exhibits 1, 2 and 3 hereto, respectively, and incorporated herein by reference.
Except for the Option and Voting Agreement, the Merger
Agreement and the Letter Agreement, to the best knowledge of CVS, there are no
contracts, arrangements, understandings or relationships (legal or otherwise)
between CVS and the Applebaum Stockholders or any other person with respect to
any securities of the Issuer, including, but not limited to, transfer or
voting of any of the securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or
loss, or the giving or withholding of proxies.
Item 7. Material to be Filed as Exhibits
Exhibit 1: Option and Voting Agreement dated as of
February 8, 1998 between CVS Corporation and
the Applebaum Stockholders
Exhibit 2: Agreement and Plan of Merger dated as of
February 8, 1998 among CVS Corporation,
Arbor Drugs, Inc. and Red Acquisition, Inc.
Exhibit 3: Form of Affiliate's Letter for the
Applebaum Stockholders
SIGNATURES
After reasonable inquiry and to the best knowledge and belief of the
undersigned, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Date: February 18, 1998
CVS CORPORATION
By: /s/ Charles Conaway
------------------------------------------
Name: Charles Conaway
Title: Chief Financial Officer
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF CVS CORPORATION
The name, business address, title, present principal occupation
or employment of each of the directors and executive officers of CVS
Corporation ("CVS") are set forth below. If no business address is given the
director's or officer's business address is One CVS Drive, Woonsocket, RI
02895. Unless otherwise indicated, each office set forth opposite an
individual's name refers to such individual's office with CVS. Unless
otherwise indicated below, all of the persons listed below are citizens of the
United States of America.
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Directors and Executive Officers
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Present Principal Occupation
Name and Business Address Including Name of Employer
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Allan J. Bloostein President, Allen J. Bloostein
Allan J. Bloostein Associates Associates (consulting firm -
717 Fifth Avenue retail and consumer goods
21st Floor marketing)
New York, New York 10022
W. Don Cornwell Chairman of the Board and Chief
Granite Broadcasting Corporation Executive Officer, Granite
767 Third Avenue Broadcasting Corporation
34th Floor
New York, New York 10017
Thomas P. Gerrity Dean, The Wharton School of the
The Wharton School University of Pennsylvania
University of Pennsylvania
3640 Locust Walk
Suite 1000
Philadelphia, Pennsylvania 19104
Stanley P. Goldstein Chairman of the Board and Chief
Executive Officer
William H. Joyce Chairman of the Board and Chief
Union Carbide Corporation Executive Officer, Union Carbide
39 Old Ridgebury Road Corporation
Danbury, Connecticut 06817
Terry R. Lautenbach Retired; formerly Senior Vice President,
1312 Sea Spray Lane International Business Machines
Sanibel, Florida 33957 Corporation
Terrence Murray Chairman of the Board and Chief
Fleet Financial Group Executive Officer, Fleet Financial
One Federal Street Group
Boston, Massachusetts 02110
Sheli Z. Rosenberg President and Chief Executive Officer,
Equity Group Investments, Inc. Equity Group Investments, Inc.
2 North Riverside Plaza
Suite 600
Chicago, IL 60606
Thomas M. Ryan Vice Chairman and Chief Operating
Officer; President and Chief
Executive Officer, CVS Pharmacy,
Inc.
Ivan G. Seidenberg President and Chief Operating
Bell Atlantic Corporation Officer, Bell Atlantic
1095 Avenue of the Americas Corporation
Floor 41
New York, New York 10036
Patricia Carry Stewart Retired; formerly Vice President, The
2613 North Ocean Boulevard Edna McConnell Clark Foundation
Gulf Stream, Florida 33483
Thomas O. Thorsen Retired; formerly Vice Chairman,
7790 Old Marsh Road The Travelers Corporation, and
Palm Beach, FL 33418 Senior Vice President of Finance,
General Electric Corporation
M. Cabell Woodward, Jr. Retired; formerly Vice Chairman, Chief
45 Manursing Way Financial Officer and a Director, ITT
Rye, New York 10580 Corporation
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Executive Officers (who are not also Directors)
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Present Principal Occupation
Name and Business Address Including Name of Employer
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Charles C. Conaway Executive Vice President and Chief
Financial Officer; Executive Vice
President and Chief Financial
Officer, CVS Pharmacy, Inc.
Daniel C. Nelson Vice President; Executive Vice
President - Marketing, CVS
Pharmacy, Inc.
Larry J. Merlo Vice President; Senior Vice
President - Stores, CVS Pharmacy,
Inc.
Douglas A. Sgarro Vice President; Senior Vice President -
Administration and Chief Legal
Officer, CVS Pharmacy, Inc.
Larry D. Solberg Vice President; Senior Vice
President - Controllor, CVS
Pharmacy, Inc.
Rosemary Mede Vice President; Senior Vice
President - Human Resources, CVS
Pharmacy, Inc.
Philip C. Galbo Vice President - Treasurer; Vice
President - Treasurer, CVS
Pharmacy, Inc.
Nancy R. Christal Vice President; Vice President -
Investor Relations, CVS Pharmacy,
Inc.
Zenon P. Lankowsky Secretary; Vice President - General
Counsel, CVS Pharmacy, Inc.
SCHEDULE B
TRANSACTIONS IN SHARES OF THE ISSUER
SINCE DECEMBER 18, 1997 BY CVS CORPORATION
<TABLE>
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Date of Number of Shares Aggregate
Transaction Purchased Nature of Purchase Price Per Share Purchase Price
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<S> <C> <C> <C> <C>
</TABLE>
Since December 18, 1997, CVS Corporation has not, directly or
indirectly, made any open market or private purchases of shares of Common
Stock.
Exhibit 1
OPTION AND VOTING AGREEMENT
AGREEMENT dated as of February 8, 1998 among CVS Corporation,
a Delaware corporation ("Buyer"), and the holders (the "Stockholders") of the
shares of common stock, $0.01 par value (the "Shares") of Arbor Drugs, Inc., a
Michigan corporation ("Company"), listed on the signature pages hereof.
WHEREAS, in order to induce Buyer to enter into the Agreement
and Plan of Merger (the "Merger Agreement") with Company dated as of the date
hereof, Buyer has requested the Stockholders, and the Stockholders have
agreed, to enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Defined Terms; Stock Option
Section 1.1. Defined Terms. Capitalized terms used but not
defined in this Agreement are used as defined in the Merger Agreement.
Section 1.2. Grant of Stock Option. Each Stockholder hereby
grants to Buyer an irrevocable option (the "Option") to purchase all Shares
presently owned by such Stockholder as set forth on the signature page hereto
and any additional Shares acquired by the Stockholder (whether by purchase or
otherwise) after the date of this Agreement (the "Stockholder Shares") at a
purchase price of $23 per Stockholder Share (the "Purchase Price"); provided
that the Stockholders may retain an aggregate of 600,000 Shares for purposes
of donation to charity, which shall not be Stockholder Shares subject to the
Option.
Section 1.3. Exercise of Option. (a) Subject to the
conditions set forth in Section 1.05 hereof, the Option may be exercised by
Buyer, in whole but not in part, at any time after the occurrence of a Trigger
Event (as defined below) and prior to the first anniversary after the
termination of the Merger Agreement in accordance with the terms thereof. In
the event Buyer wishes to exercise the Option for all of the Stockholder
Shares, Buyer shall send a written notice (the "Exercise Notice") to the
Stockholders specifying the place, the date (not less than one nor more than
20 business days from the date of the Exercise Notice), and the time for the
closing of such purchase, provided that such date and time may be earlier than
one day after the Exercise Notice if reasonably practicable. The closing of
the purchase of Stockholder Shares (the "Closing") shall take place at the
place, on the date and at the time designated by Buyer in its Exercise Notice,
provided that if, at the date of the Closing herein provided for, the
conditions set forth in Section 1.05 shall not have been satisfied (or waived
by the Stockholders), Buyer may postpone the Closing until a date within five
business days after such conditions are satisfied.
(b) Buyer shall not be under any obligation to deliver any Exercise
Notice and may allow the Option to terminate without purchasing any
Stockholder Shares hereunder; provided, however, that once Buyer has delivered
to the Stockholders an Exercise Notice, subject to the terms and conditions of
this Agreement, Buyer shall be bound to effect the purchase as described in
such Exercise Notice.
Section 1.4. Closing. Each Stockholder shall deliver to Buyer
a certificate or certificates (the "Certificates") representing (or cause to
be made book entry delivery to an account designated by Buyer) such Stockholder
Shares, in the case of certificates, duly endorsed or accompanied by stock
powers duly executed in blank and at Buyer's election, Buyer shall deliver to
such Stockholder either (x) a certified or bank cashier's check or checks
payable to or upon the order of such Stockholder in an amount equal to (i) the
number of Stockholder Shares being purchased at such Closing multiplied by
(ii) the Purchase Price (the "Purchase Amount") or (y) the number of shares
of the Parent Common Stock equal to the Purchase Amount divided by the
closing price on the NYSE of Parent Common Stock on the trading day prior to
delivery of the Exercise Notice. If Buyer elects to deliver the Parent Common
Stock pursuant to the immediately preceding sentence, Buyer shall concurrently
enter into a Registration Rights Agreement with the Stockholders in respect of
shares of Parent Common Stock delivered to the Stockholders hereunder. Such
agreement shall be substantially in the form of Exhibit B to the Merger
Agreement.
Section 1.5. Conditions to the Stockholder's Obligations. The
obligation of any Stockholder to sell Stockholder Shares at the Closing is
subject to the following conditions:
(a) The representations and warranties of
Buyer contained in Article 4 shall be true and correct in all
material respects on the date thereof and Buyer shall not be in
material breach of its obligations under the Merger Agreement.
(b) All waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder
(the "HSR Act") applicable to such exercise of the Option shall
have expired or been terminated.
(c) There shall be no preliminary or permanent
injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or
administrative agency or commission, nor any statute, rule,
regulation or order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining such exercise of
the Option.
(d) (i) the Merger Agreement has been
terminated by Company pursuant to Section 7.01(e) of the Merger
Agreement; (ii) the Merger Agreement has been terminated by
Buyer pursuant to Section 7.01(d) of the Merger Agreement or
(iii) a termination fee is payable under Section 8.04(b)(z)(1)
of the Merger Agreement (each of (i), (ii) and (iii) being a
"Trigger Event").
Section 1.6. Adjustment Upon Change in Capitalization or
Merger. (a) In the event of any change in Company's capital stock by reason
of stock dividends, stock splits, mergers, consolidations, recapitalizations,
combinations, conversions, exchanges of shares, extraordinary or liquidating
dividends, or other changes in the corporate or capital structure of Company
which would have the effect of diluting or changing Buyer's rights hereunder,
the number and kind of shares or securities subject to the Option and the
purchase price per Stockholder Share (but not the total purchase price) shall
be appropriately and equitably adjusted so that Buyer shall receive upon
exercise of the Option the number and class of shares or other securities or
property that Buyer would have received in respect of the Stockholders Shares
purchasable upon exercise of the Option if the Option had been exercised
immediately prior to such event. The Shareholders shall take such steps in
connection with such consolidation, merger, liquidation or other such action as
may be necessary to assure that the provisions hereof shall thereafter apply as
nearly as possible to any securities or property thereafter deliverable upon
exercise of the Option.
(b) In the event the consideration per Share to be paid by Buyer
pursuant to the Merger is increased, the Purchase Price shall be similarly
increased and in the event the Closing hereunder shall have occurred, Buyer
shall promptly pay to the Stockholder the product of the amount of such
increase in the Purchase Price multiplied by the number of Stockholder Shares
as to which the Stockholder Option has been exercised.
ARTICLE 2
Voting
Section 2.1. Voting of Company Common Stock. Each Stockholder
hereby agrees that at any meeting (whether annual or special and whether or
not an adjourned or postponed meeting) of the holders of Company Common Stock,
however called, or in connection with any written consent of the holders of
Company Common Stock, such Stockholder will appear at the meeting or otherwise
cause the Stockholder Shares to be counted as present thereat for purposes of
establishing a quorum and such Stockholder shall vote or consent (or cause to
be voted or consented) the Stockholder Shares in favor of the Merger, the
execution and delivery by Company of the Merger Agreement and the approval and
adoption of the terms thereof and each of the other actions contemplated by
the Merger Agreement and this Agreement and any actions required in
furtherance thereof and hereof.
ARTICLE 3
Representations and Warranties of the Stockholders
Each of the Stockholders represents and warrants to Buyer as to
itself that:
Section 3.1. Ownership of Shares. Such Stockholder has sole
voting power and sole power to issue instructions with respect to the matters
set forth in Articles 1 and 2 hereof, sole power of disposition, sole power to
demand appraisal rights and sole power to agree to all of the matters set forth
in this Agreement, in each case with respect to all of the Stockholder Shares
held by such Stockholder with no limitations, qualifications or restrictions on
such rights, subject to applicable securities laws and the terms of this
Agreement.
Section 3.2. Authorization. This Agreement has been duly and
validly executed and delivered by such Stockholder and constitutes a valid and
binding agreement enforceable against such Stockholder in accordance with its
terms except to the extent such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors rights and the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 3.3. No Conflicts. Except for filings, authorizations,
consents and approvals as may be required under the HSR Act, the 1934 Act and
the 1933 Act, no filing with, and no permit, authorization, consent or
approval of, any state or federal governmental body or authority is necessary
for the execution and delivery of this Agreement by the Stockholder and the
consummation by the Stockholder of the transactions contemplated hereby and
none of the execution and delivery of this Agreement by the Stockholder, the
consummation by the Stockholder of the transactions contemplated hereby or
compliance by the Stockholder with any of the provisions hereof shall conflict
with or result in any breach of the organizational documents of the
Stockholder, result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or
acceleration) under any of the terms, conditions or provisions of any note,
loan agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which the Stockholder is a party or by which the Stockholder or any of
its properties or assets may be bound, or violate any order, writ, injunction,
decree, judgment, statute, law, rule or regulation applicable to the
Stockholder or any of its properties or assets.
Section 3.4. No Encumbrances. Except as expressly provided in
this Agreement, the Stockholder Shares and the Certificates are now, and at all
times during the term hereof, will be, held by the Stockholder, or by a
nominee or custodian for the benefit of the Stockholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever, except
for any such encumbrances or proxies arising hereunder and other than liens
arising from securities margin accounts.
Section 3.5. No Finder's Fees. Other than as contemplated by
the Merger Agreement with respect to fees payable by Company, no broker,
investment banker, financial advisor or other Person is entitled to any
broker's, finder's, financial adviser's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of the Stockholder.
Section 3.6. Reliance by Buyer. The Stockholder understands
and acknowledges that Buyer is entering into the Merger Agreement in reliance
upon the Stockholder's execution and delivery of this Agreement.
ARTICLE 4
Representations and Warranties of Buyer
Buyer represents and warrants to each of the Stockholders:
Section 4.1. Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware, has all requisite corporate power and authority to execute and
deliver this Agreement and perform its obligations hereunder. The execution
and delivery by Buyer of this Agreement and the performance by Buyer of its
obligations hereunder have been duly and validly authorized by the Board of
Directors of Buyer and no other corporate proceedings on the part of Buyer are
necessary to authorize the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby.
Section 4.2. Corporate Authorization. This Agreement has been
duly and validly executed and delivered by Buyer and constitutes a valid and
binding agreement of Buyer enforceable against Buyer in accordance with its
terms except to the extent (i) such enforcement may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors rights and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
Section 4.3. No Conflicts. Except for filings, authorizations,
consents and approvals as may be required under the HSR Act, the 1934 Act and
the 1933 Act, (i) no filing with, and no permit, authorization, consent or
approval of, any state or federal governmental body or authority is necessary
for the execution and delivery of this Agreement by Buyer and the consummation
by Buyer of the transactions contemplated hereby and (ii) none of the
execution and delivery of this Agreement by Buyer, the consummation by Buyer
of the transactions contemplated hereby or compliance by Buyer with any of the
provisions hereof shall (A) conflict with or result in any breach of the
certificate of incorporation or by-laws of Buyer, (B) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms, conditions or
provisions of any note, loan agreement, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Buyer is a party or its
properties or assets may be bound, or (C) violate any order, writ, injunction,
decree, judgment, statute, law, rule or regulation applicable to Buyer or any
of its properties or assets.
Section 4.4. No Finder's Fees. Except for Credit Suisse First
Boston Corporation, whose fees will be paid by Buyer, no broker, investment
banker, financial adviser or other Person is entitled to any broker's,
finder's, financial adviser's or other similar fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of Buyer.
ARTICLE 5
Covenants of the Stockholders
Each of the Stockholders hereby covenants and agrees that:
Section 5.1. Restriction on Transfer; Proxies;
Non-Interference. The Stockholder shall not, directly or indirectly: offer
for sale, sell, transfer, tender, pledge, encumber (other than by operation of
law), assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Stockholder Shares or any interest therein;
except as contemplated by this Agreement, grant any proxies or powers of
attorney, deposit the Stockholder Shares into a voting trust or enter into a
voting agreement with respect to the Stockholder Shares; or take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or would result in a breach by the Stockholder of
its obligations under this Agreement or a breach by Company of its obligations
under the Merger Agreement or the effect of which would be inconsistent or
violative of any provision or agreement contained in this Agreement.
Section 5.2. No Solicitation. The Stockholder shall not, and
shall cause its Affiliates and officers, directors, employees, investment
bankers, consultants and other agents of the Stockholder and such Affiliates
(such Affiliates, officers, directors, employees, investment bankers,
consultants and other agents of any Person are hereinafter collectively
referred to as the "Representatives" of such Person) not to, directly or
indirectly, take any action to initiate, solicit, encourage or facilitate the
making of any Acquisition Proposal or any inquiry with respect thereto, or
engage in discussions or negotiations with any Person (other than Buyer or any
of its Affiliates or Representatives) relating to any Acquisition Proposal or
disclose any non-public information relating to Company or any Subsidiary of
Company, or afford access to the properties, books or records of Company or any
Subsidiary of Company, to any Person that is considering making or has made
any Acquisition Proposal. The Stockholder shall notify Buyer orally and in
writing of any offers, proposals or inquiries received by the Stockholder
relating to the purchase or acquisition by any Person of the Shares and of any
Acquisition Proposal actually known to the Stockholder (including in each case
the material terms and conditions thereof and the identity of the Person making
it), within 24 hours of the receipt thereof. The Stockholder shall, and shall
cause its Representatives to, immediately cease and cause to be terminated any
and all existing activities, discussions or negotiations, if any, with any
parties conducted heretofore with respect to any Acquisition Proposal, other
than discussions or negotiations with Buyer and its Affiliates.
Notwithstanding the restrictions set forth in this Section 5.02, each of
Company and any Person who is an officer or director of Company, including any
individual Stockholder serving in capacity of director or officer, may take
any action in such capacity consistent with the terms of the Merger Agreement.
Section 5.3. Stop Transfer; Legend. (a) Each Stockholder
agrees with, and covenants to, Buyer that the Stockholder shall not request
that Company register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of the Stockholder
Shares unless such transfer is made in compliance with this Agreement.
(b) Each Stockholder will, prior to the Effective Time, duly
execute and deliver to Buyer the Affiliate's letter contemplated in Section
5.11 of the Merger Agreement substantially in the form of Exhibit C-3 to the
Merger Agreement.
(c) Each Stockholder shall promptly after the date hereof
surrender to Company all certificates representing the Stockholder Shares, and
Company shall place the following legend on such certificates:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO AN OPTION AND VOTING AGREEMENT DATED AS
OF FEBRUARY 8, 1998 BY AND BETWEEN CVS CORPORATION AND
[STOCKHOLDERS] WHICH AMONG OTHER THINGS RESTRICTS THE
TRANSFER AND VOTING THEREOF."
ARTICLE 6
Miscellaneous
Section 6.1. Termination of Agreement. The provisions of
Section 1.02 shall terminate at the Effective Time of the Merger Agreement or
upon the termination of the Merger Agreement; provided that Section 1.02 shall
not terminate upon termination of the Merger Agreement (i) pursuant to Section
7.01(d) or 7.01(e) of the Merger Agreement, or (ii) pursuant to Section 7.01(b)
of the Merger Agreement where the Board of Directors of Company has failed to
recommend the Merger or modified such recommendation in a manner adverse to
Buyer.
Section 6.2. Indemnity. (a) Buyer agrees that it will
indemnify each Stockholder from and against any costs, liabilities or expenses
(including reasonable attorneys' fees and expenses) arising out of any claim
or action brought by or on behalf of any shareholder of Company (other than any
Stockholder), alleging damage by reason of the grant by such Stockholder of
the Option contemplated hereby, or the exercise of the Option, provided that
(i) such indemnity shall apply if and only to the extent that the Company's
directors and officers liability insurance policies are insufficient to cover
any such cost, liability or expense or said insurer fails to pay under such
policy upon request (it being understood that in the case of any payment by
Buyer or Company hereunder, any such payment shall not waive or otherwise
affect any rights of Buyer or Company) and (ii) Buyer shall not be obligated
to indemnify any Stockholder hereunder for any cost, liability or expense
arising from the wilful misconduct of such Stockholder.
(b) Each Stockholder indemnified under paragraph (a) above
shall, promptly after receipt of notice of a claim or action against such
Stockholder in respect of which indemnity may be sought hereunder, notify
Buyer in writing of such claim or action; provided that the failure to notify
Buyer shall not relieve it from any liability that it may have to such
Stockholder on account of the indemnity contained in paragraph (a) above
except to the extent that Buyer was actually prejudiced by such failure.
Buyer shall be entitled to assume the defense of such claim or action with
counsel of its choice at Buyer's expense. Buyer shall not be liable to
indemnify any Stockholder if such Stockholder settles such claim or action
without the consent of Buyer. Buyer may not agree to any settlement of any
such claim or action unless such settlement includes an unconditional release
of Stockholder from all claims thereunder. In any action hereunder as to which
Buyer has assumed the defense thereof, the Stockholder shall continue to be
entitled to participate in the defense thereof, with counsel of its own choice
reasonably acceptable to Buyer and at the expense of Buyer.
Section 6.3. Expenses. All costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such cost
or expense.
Section 6.4. Further Assurances. In the event Buyer exercises
the Option, Buyer and the Stockholders will each execute and deliver or cause
to be executed and delivered all further documents and instruments and use its
best efforts to secure such consents and take all such further action as may be
reasonably necessary in order to consummate the transactions contemplated
hereby or to enable Buyer to exercise and enjoy all benefits and rights of the
Stockholders with respect to the Stockholder Shares acquired pursuant to
exercise of the Option.
Section 6.5. Additional Agreements. Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations and which may be required under any agreements, contracts,
commitments, instruments, understandings, arrangements or restrictions of any
kind to which such party is a party or by which such party is governed or
bound, to consummate and make effective the transactions contemplated by this
Agreement, to obtain all necessary waivers, consents and approvals and effect
all necessary registrations and filings, including, but not limited to,
filings under the HSR Act, responses to requests for additional information
related to such filings, and submission of information requested by
governmental authorities, and to rectify any event or circumstances which
could impede consummation of the transactions contemplated hereby.
Section 6.6. Specific Performance. The parties hereto agree
that Buyer would be irreparably damaged if for any reason the Stockholders
failed to sell the Stockholder Shares upon exercise of the Option or to
perform any of its other obligations under this Agreement, and that Buyer
would not have an adequate remedy at law for money damages in such event.
Accordingly, Buyer shall be entitled to specific performance and injunctive
and other equitable relief to enforce the performance of this Agreement by the
Stockholders. This provision is without prejudice to any other rights that
Buyer may have against the Stockholders for any failure to perform its
obligations under this Agreement.
Section 6.7. Notices. All notices, requests, claims, demands
and other communications hereunder shall be deemed to have been duly given
when delivered in person, by cable, telegram or telecopy, or by registered or
certified mail (postage prepaid, return receipt requested) to such party at its
address set forth on the signature page hereto.
Section 6.8. Survival of Representations and Warranties. All
representations and warranties contained in this Agreement shall survive
delivery of and payment for the Stockholder Shares.
Section 6.9. Amendments. This Agreement may not be modified,
amended, altered or supplemented, except upon the execution and delivery of a
written agreement executed by the parties hereto.
Section 6.10. Successors and Assigns. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of the other parties hereto.
Section 6.11. Governing Law. This Agreement shall be
construed in accordance with and governed by the law of the State of Michigan
without giving effect to the principles of conflicts of laws thereof.
Section 6.12. Further Assurances. From time to time, at the
other party's request and without further consideration, each party hereto
shall execute and deliver such additional documents and take all such further
lawful action as may be necessary or desirable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.
Section 6.13. Descriptive Headings. The descriptive headings
used herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
Section 6.14. Counterparts; Effectiveness. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
CVS CORPORATION
By: /s/ Thomas M. Ryan
-----------------------------------
Name: Thomas M. Ryan
Title: Vice Chairman and Chief
Operating Officer
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Fax: (401) 762-3012
Attention: Thomas M. Ryan, Vice
Chairman and Chief
Operating Officer
Class of Shares EUGENE APPLEBAUM LIVING TRUST
Stock Owned
-------- ----------
common 13,275,555 By: /s/ Eugene Applebaum
----------------------------------
Name: Eugene Applebaum
Title: Trustee
Class of Shares
Stock Owned
-------- ----------
common 265,780 /s/ Marcia C. Applebaum
----------------------------------
Marcia C. Applebaum
Class of Shares TRUST FOR THE BENEFIT OF
Stock Owned LISA S. APPLEBAUM
-------- ----------
common 493,593 By: /s/ Marcia C. Applebaum
----------------------------------
Name: Marcia Applebaum
Title: Trustee
Class of Shares TRUST FOR THE BENEFIT OF
Stock Owned PAMELA A. APPLEBAUM
-------- ----------
common 493,593 By: /s/ Marcia C. Applebaum
----------------------------------
Name: Marcia Applebaum
Title: Trustee
Stockholder notices shall be given to:
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Fax: (313) 962-0176
Attention: Alan S. Schwartz, Esq.
Exhibit 2
AGREEMENT AND PLAN OF MERGER
dated as of
February 8, 1998
among
CVS CORPORATION,
ARBOR DRUGS, INC.
AND
RED ACQUISITION, INC.
TABLE OF CONTENTS
--------------
Page
----
ARTICLE 1
The Merger
Section 1.1. The Merger..............................................2
Section 1.2. Conversion of Shares....................................2
Section 1.3. Surrender and Payment...................................4
Section 1.4. Stock Options...........................................5
Section 1.5. Fractional Shares.......................................7
Section 1.6. Adjustments.............................................8
ARTICLE 2
The Surviving Corporation
Section 2.1. Articles of Incorporation...............................8
Section 2.2. Bylaws..................................................8
Section 2.3. Directors and Officers..................................8
ARTICLE 3
Representations and Warranties of Company
Section 3.1. Organization and Power..................................9
Section 3.2. Corporate Authorization.................................9
Section 3.3. Governmental Authorization.............................10
Section 3.4. Non-contravention......................................10
Section 3.5. Capitalization of Company..............................11
Section 3.6. Capitalization of Subsidiaries.........................12
Section 3.7. SEC Filings............................................12
Section 3.8. Financial Statements...................................13
Section 3.9. Disclosure Documents...................................13
Section 3.10. Information Supplied...................................14
Section 3.11. Absence of Certain Changes.............................14
Section 3.12. No Undisclosed Material Liabilities....................16
Section 3.13. Litigation.............................................16
Section 3.14. Taxes..................................................16
Section 3.15. Employee Benefit Plans; ERISA..........................18
Section 3.16. Compliance with Laws; No Default; No Non-Competes......19
Section 3.17. Finders' Fees..........................................20
Section 3.18. Environmental Matters..................................20
Section 3.19. Assets.................................................22
Section 3.20. Opinion of Financial Advisor...........................22
Section 3.21. Transactions with Affiliates...........................22
Section 3.22. Pooling; Tax Treatment.................................22
Section 3.23. Pooling Letter.........................................23
Section 3.24. Takeover Statutes......................................23
Section 3.25. Affiliates.............................................23
ARTICLE 4
Representations and Warranties of Parent
Section 4.1. Organization and Power.................................24
Section 4.2. Corporate Authorization................................24
Section 4.3. Governmental Authorization.............................24
Section 4.4. Non-contravention......................................25
Section 4.5. Capitalization of Parent...............................25
Section 4.6. Capitalization of Subsidiaries.........................27
Section 4.7. SEC Filings............................................27
Section 4.8. Financial Statements...................................27
Section 4.9. Disclosure Documents...................................28
Section 4.10. Information Supplied...................................28
Section 4.11. Absence of Certain Changes.............................28
Section 4.12. No Undisclosed Material Liabilities....................30
Section 4.13. Litigation.............................................31
Section 4.14. Taxes..................................................31
Section 4.15. Employee Benefits, ERISA...............................31
Section 4.16. Compliance with Laws; No Default; No Non-Competes......33
Section 4.17. Finders' Fees..........................................34
Section 4.18. Environmental Matters..................................34
Section 4.19. Assets.................................................34
Section 4.20. Accounting Matters.....................................35
Section 4.21. Pooling Letter.........................................35
Section 4.22. Takeover Statutes......................................35
Section 4.23. Merger Subsidiary......................................35
ARTICLE 5
Covenants
Section 5.1. Conduct of Company.....................................35
Section 5.2. Conduct of Parent......................................38
Section 5.3. Stockholder Meeting; Proxy Materials; Form S-4.........40
Section 5.4. Access to Information..................................41
Section 5.5. No Solicitation........................................41
Section 5.6. Notices of Certain Events..............................43
Section 5.7. Reasonable Best Efforts................................44
Section 5.8. Cooperation............................................45
Section 5.9. Public Announcements...................................45
Section 5.10. Further Assurances.....................................45
Section 5.11. Affiliates; Registration Rights........................45
Section 5.12. Director and Officer Liability.........................46
Section 5.13. Obligations of Merger Subsidiary.......................47
Section 5.14. Listing of Stock.......................................47
Section 5.15. Antitakeover Statutes..................................47
Section 5.16. Tax and Accounting Treatment...........................47
Section 5.17. Employee Benefits......................................48
Section 5.18. Parent Board of Directors..............................49
Section 5.19. Combined Financial Results.............................49
Section 5.20. Charitable Commitment..................................49
Section 5.21. Parent's Registration Rights...........................49
ARTICLE 6
Conditions to the Merger
Section 6.1. Conditions to the Obligations of Each Party............50
Section 6.2. Conditions to the Obligations of Parent and Merger
Subsidiary...........................................51
Section 6.3. Conditions to the Obligations of Company...............51
ARTICLE 7
Termination
Section 7.1. Termination............................................52
Section 7.2. Effect of Termination..................................54
ARTICLE 8
Miscellaneous
Section 8.1. Notices................................................54
Section 8.2. Entire Agreement; Non-survival of Representations and
Warranties; Third Party Beneficiaries................55
Section 8.3. Amendments; No Waivers.................................56
Section 8.4. Expenses...............................................56
Section 8.5. Successors and Assigns.................................57
Section 8.6. Governing Law..........................................57
Section 8.7. Jurisdiction...........................................57
Section 8.8. Counterparts; Effectiveness............................58
Section 8.9. Interpretation.........................................58
Section 8.10. Severability...........................................58
Section 8.11. Specific Performance...................................58
Section 8.12. Joint and Several Liability............................58
Schedules
Exhibit A Option and Voting Agreement
Exhibit B Registration Rights Agreement
Exhibit C-1 Affiliate's Letter Relating to Pooling (Company)
Exhibit C-2 Affiliate's Letter Relating to Pooling (Parent)
Exhibit C-3 Affiliate's Letter (Company)
Exhibit D Form of Tax Certificate (Parent)
Exhibit E Form of Tax Certificate (Company)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 8, 1998 among
CVS Corporation, a Delaware corporation ("Parent"), Arbor Drugs, Inc., a
Michigan corporation ("Company"), and Red Acquisition, Inc., a Michigan
corporation and a wholly-owned subsidiary of Parent ("Merger Subsidiary").
WHEREAS, the respective Boards of Directors of Parent and Company
have approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the acquisition of Company by Parent on
the terms and conditions set forth herein;
WHEREAS, for United States federal income tax purposes, it is
intended that the Merger contemplated by this Agreement qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code"), and the rules and regulations promulgated
thereunder;
WHEREAS, for accounting purposes, it is intended that the Merger
be accounted for as a pooling of interests under United States generally
accepted accounting principles ("GAAP"); and
WHEREAS, as a condition and inducement to Parent entering into
this Agreement and incurring the obligations set forth herein, concurrently with
the execution and delivery of this Agreement, Parent is entering into an Option
and Voting Agreement with certain stockholders of Company ("Selling
Stockholders") in the form of Exhibit A hereto (the "Option Agreement") pursuant
to which, among other things, each Selling Stockholder has agreed (i) under
certain circumstances to sell the shares of Company Common Stock owned by such
Selling Stockholder to Parent and (ii) to vote the shares of Company Common
Stock owned by such Selling Stockholder in favor of this Agreement and the
Merger provided for herein;
NOW, THEREFORE, in consideration of the promises and the
respective representations, warranties, covenants, and agreements set forth
herein, the parties hereto agree as follows:
ARTICLE 1
The Merger
Section 1.1. The Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as hereinafter
defined), Merger Subsidiary shall be merged (the "Merger") with and into Company
in accordance with the Michigan Business Corporation Act (the "Michigan Law"),
whereupon the separate existence of Merger Subsidiary shall cease, and Company
shall continue as the surviving corporation (the "Surviving Corporation").
(b) Upon the terms and subject to the conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at 10:00 a.m. on a
date (the "Closing Date") which shall be no later than the second business day
after satisfaction of the conditions set forth in Article 6, other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction of those conditions at the Closing, at the offices of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, unless another
time, date or place is agreed to in writing by the parties hereto.
(c) Upon the Closing, Company and Merger Subsidiary will file a
certificate of merger with the Michigan Department of Consumer and Industry
Services and make all other filings or recordings required by Michigan Law in
connection with the Merger. The Merger shall become effective at such time as
the certificate of merger is duly filed with the Michigan Department of Consumer
and Industry Services or at such later time as is agreed by Parent and Company
and specified in the certificate of merger (the "Effective Time").
(d) The Merger shall have the effects set forth in Section 450.1724
of the Michigan Law.
Section 1.2. Conversion of Shares. (a) At the Effective Time:
(i) each share of Common Stock, par value $0.01 per
share, of Company ("Company Common Stock") owned by Parent or any
Subsidiary (as hereinafter defined) of Parent immediately prior
to the Effective Time shall be canceled, and no Parent Common
Stock or other consideration shall be delivered in exchange
therefor;
(ii) each share of common stock of Merger Subsidiary
("Merger Subsidiary Common Stock") outstanding immediately prior
to the Effective Time shall be converted into and become one
share of common stock of the Surviving Corporation and shall
constitute the only outstanding shares of capital stock of the
Surviving Corporation; and
(iii) each share (each, a "Share" and collectively, the
"Shares") of Company Common Stock outstanding immediately prior
to the Effective Time shall, except as otherwise provided in
Section 1.02(a)(i), be converted into the right to receive the
number of shares of fully paid and non-assessable Common Stock,
par value $0.01 per share ("Parent Common Stock"), of Parent
equal to that number (the "Exchange Ratio") (rounded to the
nearest ten-thousandth) determined by dividing $23 by the Parent
Average Closing Price; provided that the Exchange Ratio (x) shall
not be less than 0.3182 and (y) shall not exceed 0.3660 ((x) and
(y) being referred to as "Collars").
For purposes of this Agreement, "Parent Average Closing Price"
means the average closing price per share of the Parent Common Stock on the New
York Stock Exchange, Inc. (the "NYSE") for the Random Trading Days and "Random
Trading Days" means the ten trading days selected by lot out of the twenty
trading days ending on and including the fifth trading day preceding the date of
the Company Stockholders Meeting (with the Random Trading Days selected by lot
by Parent and Company at 5:00 p.m. New York time on the fifth trading day prior
to the date of the Company Stockholders Meeting).
(b) From and after the Effective Time, all Shares converted in
accordance with Section 1.02(a)(iii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration (as
hereinafter defined) and any dividends payable pursuant to Section 1.03(f). From
and after the Effective Time, all certificates representing the common stock of
Merger Subsidiary shall be deemed for all purposes to represent the number of
shares of common stock of the Surviving Corporation into which they were
converted in accordance with Section 1.02(a)(ii).
(c) The Parent Common Stock to be received as consideration pursuant
to the Merger by each holder of Shares (together with cash in lieu of fractional
shares of Parent Common Stock as specified below) is referred to herein as the
"Merger Consideration".
(d) For purposes of this Agreement, the word "Subsidiary" when used
with respect to any Person means any other Person, whether incorporated or
unincorporated, of which a majority of the securities or other interests having
by their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person or by any one or more of its Subsidiaries. For purposes of this
Agreement, "Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a Governmental Authority (as hereinafter defined).
Section 1.3. Surrender and Payment. (a) Prior to the Effective
Time, Parent shall appoint an agent reasonably acceptable to Company (the
"Exchange Agent") for the purpose of exchanging certificates representing Shares
for the Merger Consideration. Immediately following the Effective Time, Parent
shall deposit with the Exchange Agent, for the benefit of the holders of shares
of Company Common Stock, certificates representing the Parent Common Stock
issuable pursuant to Section 1.02 in exchange for outstanding shares of Company
Common Stock. Promptly after the Effective Time, Parent will send, or will cause
the Exchange Agent to send, to each holder of Shares at the Effective Time (i) a
letter of transmittal for use in such exchange (which shall specify that
delivery of the Merger Consideration shall be effected, and risk of loss and
title to the certificates representing Parent Common Stock and Company Common
Stock shall pass, only upon proper delivery of the certificates representing
Shares to the Exchange Agent) and (ii) instructions for use in effecting the
surrender of the certificates representing Shares in exchange for the
certificates representing Parent Common Stock.
(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a properly
completed letter of transmittal covering such Shares, will be entitled to
receive the Merger Consideration payable in respect of such Shares and any
dividends payable pursuant to Section 1.03(f). Until so surrendered, each such
certificate shall, after the Effective Time, represent for all purposes only the
right to receive the Merger Consideration and any dividends payable pursuant to
Section 1.03(f).
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required by reason of the payment of the Merger Consideration to
a Person other than the registered holder of such Shares represented by the
certificate or certificates so surrendered or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by the holders
of Shares six months after the Effective Time shall be returned to Parent, upon
demand, and any such holder who has not exchanged his Shares for the Merger
Consideration in accordance with this Section 1.03 prior to that time shall
thereafter look only to Parent for payment of the Merger Consideration and any
dividends payable pursuant to Section 1.03(f) in respect of his Shares.
Notwithstanding the foregoing, Parent shall not be liable to any holder of
Shares for any amount paid to a public official pursuant to applicable abandoned
property laws. Any amounts remaining unclaimed by holders of Shares seven years
after the Effective Time (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to or become property of any Governmental
Authority) shall, to the extent permitted by applicable law, become the property
of Parent free and clear of any claims or interest of any Person previously
entitled thereto.
(f) No dividends or other distributions with respect to Parent Common
Stock issued in the Merger shall be paid to the holder of any unsurrendered
certificates representing Shares until such certificates are surrendered as
provided in this Section 1.03. Subject to the effect of applicable laws,
following the surrender of such certificates, there shall be paid, without
interest, to the record holder of the Parent Common Stock issued in exchange
therefor at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time payable prior to or on
the date of such surrender with respect to such whole shares of Parent Common
Stock and not previously paid, less the amount of any withholding taxes which
may be required thereon.
Section 1.4. Stock Options. (a) As soon as practicable following
the date of this Agreement, Parent and Company (or, if appropriate, any
committee of the Board of Directors of Company administering Company's Amended
and Restated Stock Option Plan and 1996 Stock Option Plan (collectively, the
"Company Option Plans") shall take such action as may be required to effect the
following provisions of this Section 1.04(a). The terms of each outstanding
option granted by Company to purchase shares of Company Common Stock under the
Company Option Plans (a "Company Stock Option"), whether vested or unvested,
shall be adjusted as necessary to provide that at the Effective Time, each
Company Stock Option outstanding immediately prior to the Effective Time shall
be deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such Company Stock Option (after giving effect to the
existing provisions in the Company Option Plans or related option agreements
that provide for the automatic acceleration of vesting upon consummation of a
change of control of Company), the same number of shares of Parent Common Stock
as the holder of such Company Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such Company Stock Option in
full immediately prior to the Effective Time (assuming for this purpose that
such option were then exercisable), at a price per share of Parent Common Stock
equal to (A) the aggregate exercise price for the shares of Company Common Stock
otherwise purchasable pursuant to such Company Stock option divided by (B) the
aggregate number of shares of Parent Common Stock deemed purchasable pursuant to
such Company Stock Option (each, as so adjusted, an "Adjusted Option"); provided
that (after aggregating all the Shares of a holder subject to Company Stock
Options) any fractional share of Parent Common Stock resulting from such
calculation for such holder shall be rounded down to the nearest whole share;
and provided further that, in the case of any Company Stock Option to which
Section 421 of the Code applies by reason of its qualification under any of
Sections 422 through 424 of the Code ("qualified stock options"), the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such Adjusted Option shall be determined in such
manner so as to comply with Section 424 of the Code. Upon exercise of an
Adjusted Option, a cash payment shall be made to the holder of such Adjusted
Option for the fractional share of Parent Common Stock referred to in the
preceding sentence. For purposes of determining the amount of such payment the
price of the Parent Common Stock shall be the average closing price per share of
the Parent Common Stock on the NYSE for the five trading days immediately prior
to the date of exercise.
(b) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Stock Options appropriate notices setting
forth such holders' rights pursuant to the respective Company Option Plans and
that such Company Stock Options and agreements shall be assumed by Parent and
shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 1.04 after giving effect to the Merger).
(c) Parent shall take such actions as are necessary for the
assumption of the Company Option Plans pursuant to this Section 1.04, including
the reservation, issuance and listing of Parent Common Stock as is necessary to
effectuate the transactions contemplated by this Section 1.04. Parent shall
prepare and file with the SEC (as hereinafter defined) a registration statement
on Form S-8 or other appropriate form with respect to shares of Parent Common
Stock subject to Company Stock Options issued under such Company Option Plans
and shall use its reasonable best efforts to have such registration statement
declared effective as soon as practicable following the Effective Time and to
maintain the effectiveness of such registration statement or registration
statements covering such Company Stock Options (and maintain the current status
of the prospectus or prospectuses contained therein) for so long as such Company
Stock Options remain outstanding. With respect to those individuals, if any, who
subsequent to the Effective Time will be subject to the reporting requirements
under Section 16(a) of the 1934 Act (as hereinafter defined), where applicable,
Parent shall use all reasonable efforts to administer the Company Option Plans
assumed pursuant to this Section 1.04 in a manner that complies with Rule 16b-3
promulgated under the 1934 Act to the extent the applicable Company Option Plan
complied with such rule prior to the Merger.
Section 1.5. Fractional Shares. (a) No fractional shares of
Parent Common Stock shall be issued in the Merger, but in lieu thereof each
holder of Shares otherwise entitled to a fractional share of Parent Common Stock
will be entitled to receive, from the Exchange Agent in accordance with the
provisions of this Section 1.05, a cash payment in lieu of such fractional
shares of Parent Common Stock representing such holder's proportionate interest,
if any, in the net proceeds from the sale by the Exchange Agent in one or more
transactions of the number of shares of Parent Common Stock delivered to the
Exchange Agent by Parent pursuant to Section 1.03(a) over the aggregate number
of whole shares of Parent Common Stock to be distributed to the holders of the
certificates representing Shares pursuant to Section 1.03(b) (such excess being
herein called the "Excess Shares"). The parties acknowledge that payment of the
cash consideration in lieu of issuing fractional shares was not separately
bargained for consideration but merely represents a mechanical rounding off for
purposes of simplifying the corporate and accounting problems that would
otherwise be caused by the issuance of fractional shares. As soon as practicable
after the Effective Time, the Exchange Agent, as agent for the holders of the
certificates representing Shares, shall sell the Excess Shares at then
prevailing prices on the NYSE in the manner provided in the following paragraph.
(b) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall be
executed in round lots to the extent practicable. The proceeds from such sale or
sales available for distribution to the holders of Shares shall be reduced by
the compensation payable to the Exchange Agent and the expenses incurred by the
Exchange Agent, in each case, in connection with such sale or sales of the
Excess Shares, including all related commissions, transfer taxes and other
out-of-pocket transaction costs. Until the net proceeds of such sale or sales
have been distributed to the holders of Shares, the Exchange Agent shall hold
such net proceeds in trust for the holders of Shares (the "Common Shares
Trust"). The Exchange Agent shall determine the portion of the Common Shares
Trust to which each holder of Shares shall be entitled, if any, by multiplying
the amount of the aggregate net proceeds comprising the Common Shares Trust by a
fraction, the numerator of which is the amount of the fractional share interest
to which such holder of Shares would otherwise be entitled and the denominator
of which is the aggregate amount of fractional share interests to which all
holders of Shares would otherwise be entitled.
(c) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares in lieu of any fractional shares
of Parent Common Stock, the Exchange Agent shall make available such amounts to
such holders of Shares without interest.
Section 1.6. Adjustments. In the event of any split, combination
or reclassification of the outstanding Parent Common Stock or any issuance of
any other securities in exchange or in substitution for outstanding shares of
Parent Common Stock at any time during the period from the date of this
Agreement to the Effective Time, Company and Parent shall make such adjustment
to the Exchange Ratio and the Collars as Company and Parent shall mutually agree
so as to preserve the economic benefits that Company and Parent each reasonably
expected on the date of this Agreement to receive as a result of the
consummation of the Merger and the other transactions contemplated by this
Agreement.
ARTICLE 2
The Surviving Corporation
Section 2.1. Articles of Incorporation. The articles of
incorporation of Merger Subsidiary shall be the articles of incorporation of the
Surviving Corporation until amended in accordance with applicable law.
Section 2.2. Bylaws. The bylaws of Merger Subsidiary in
effect at the Effective Time shall be the bylaws of the Surviving Corporation
until amended in accordance with applicable law.
Section 2.3. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with the Michigan Law and the articles of incorporation and bylaws of the
Surviving Corporation, (a) the directors of Merger Subsidiary at the Effective
Time shall be the directors of the Surviving Corporation, and (b) the officers
of Merger Subsidiary at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE 3
Representations and Warranties of Company
Company represents and warrants to Parent that:
Section 3.1. Organization and Power. Each of Company and its
Subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has the requisite corporate or other power
and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Company. Each of Company and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate, have
a Material Adverse Effect on Company. For purposes of this Agreement, a
"Material Adverse Effect" with respect to any Person means a material adverse
effect (i) on the condition (financial or otherwise), business, liabilities,
properties, assets or results of operations of such Person and its Subsidiaries,
taken as a whole, or (ii) on the ability of such Person to perform its
obligations under or to consummate the transactions contemplated by this
Agreement. Schedule 3.01 sets forth a complete list of Company's Subsidiaries
that are "significant subsidiaries", as such term is defined in Section 1-02 of
Regulation S-X under the 1934 Act (each, a "Significant Subsidiary"). Company
has heretofore delivered to Parent true and complete copies of Company's
articles of incorporation and bylaws as currently in effect.
Section 3.2. Corporate Authorization. The execution, delivery and
performance by Company of this Agreement and the consummation by Company of the
transactions contemplated hereby are within Company's corporate powers and,
except as set forth in the next succeeding sentence of this Section 3.02, have
been duly authorized by all necessary corporate action. The affirmative vote of
a majority of the outstanding Shares is the only vote of any class or series of
Company's capital stock necessary to approve and adopt this Agreement and the
transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by Company and constitutes a valid and binding agreement
of Company, enforceable against Company in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, regardless of whether in
a proceeding at equity or at law).
Section 3.3. Governmental Authorization. The execution, delivery
and performance by Company of this Agreement, and the consummation by Company of
the transactions contemplated hereby, require no action by or in respect of, or
filing with, any federal, state or local government or any court, administrative
agency or commission or other governmental agency or authority (a "Governmental
Authority") other than (a) the filing of a certificate of merger with respect to
the Merger with the Michigan Department of Consumer and Industry Services and
appropriate documents with the relevant authorities of other states in which
Company is qualified to do business; (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"); (c) compliance with any applicable requirements of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "1933 Act"); (d) compliance with any applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "1934 Act"); (e) compliance with any other
applicable securities laws; (f) those that may be required solely by reason of
Parent's or Merger Subsidiary's (as opposed to any other third party's)
participation in the transactions contemplated by this Agreement; (g) the
approval of the relevant pharmacy board, alcoholic beverage commission and
lottery commission in Michigan; (h) actions or filings which, if not taken or
made, would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Company; and (i) filings and notices not
required to be made or given until after the Effective Time.
Section 3.4. Non-contravention. Except as set forth on Schedule
3.04, the execution, delivery and performance by Company of this Agreement do
not, and the consummation by Company of the transactions contemplated hereby
will not (a) assuming receipt of the approval of stockholders referred to in
Section 3.02, contravene or conflict with the articles of incorporation, bylaws
or similar organizational documents of Company or any of its Significant
Subsidiaries, (b) assuming compliance with the matters referred to in Section
3.03, contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to Company or any Subsidiary of Company, (c) constitute a default (or
an event which with notice, the lapse of time or both would become a default)
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of Company or any Subsidiary of Company or to a loss of
any benefit to which Company or any Subsidiary of Company is entitled under any
provision of any agreement, contract or other instrument binding upon Company or
any Subsidiary of Company and which either has a term of more than one year or
involves the payment or receipt of money in excess of $250,000 (a "Company
Agreement") or any license, franchise, permit or other similar authorization
held by Company or any Subsidiary of Company, or (d) result in the creation or
imposition of any Lien on any asset of Company or any Subsidiary of Company,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, losses or
Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on Company. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
Section 3.5. Capitalization of Company. (a) The authorized
capital stock of Company consists of 100,000,000 shares of Company Common Stock
and 2,000,000 shares of Preferred Stock, par value $.01 per share (the "Company
Preferred Stock"). As of the close of business on January 31, 1998, 59,363,555
shares of Company Common Stock are issued and outstanding, no shares of Company
Common Stock are reserved for issuance under Company's 401(k) Savings Plan,
750,000 shares of Company Common Stock are reserved for issuance under Company's
Employee Stock Purchase Plan, 8,352,195 shares of Company Common Stock are
reserved for issuance pursuant to options previously granted pursuant to the
Company Stock Option Plans and no shares of the Company Preferred Stock are
issued or outstanding. All holders of Company Common Stock as of the record date
will be entitled to vote with respect to the Merger. All the outstanding shares
of Company's capital stock are, and all shares which may be issued pursuant to
the Company Option Plans will be, when issued in accordance with the respective
terms thereof, duly authorized, validly issued, fully paid and non-assessable.
Except (i) as set forth in this Section 3.05 or in Schedule 5.01, (ii) for the
transactions contemplated by this Agreement, including those permitted in
accordance with Section 5.01(f), (iii) for changes since January 31, 1998
resulting from the exercise of employee and director stock options outstanding
on such date and (iv) for Shares that may be issued as provided in Section
5.01(f), there are outstanding (x) no shares of capital stock or other voting
securities of Company, (y) no securities of Company convertible into or
exchangeable for shares of capital stock or voting securities of Company, and
(z) no options, warrants or other rights to acquire from Company, and no
preemptive or similar rights, subscriptions or other rights, convertible
securities, agreements, arrangements or commitments of any character, relating
to the capital stock of Company, obligating Company to issue, transfer or sell,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Company or obligating
Company to grant, extend or enter into any such option, warrant, subscription or
other right, convertible security, agreement, arrangement or commitment (the
items in clauses (x), (y) and (z) being referred to collectively as the "Company
Securities"). None of Company or its Subsidiaries has any contractual obligation
to redeem, repurchase or otherwise acquire any Company Securities or any Company
Subsidiary Securities (as hereinafter defined), including as a result of the
transactions contemplated by this Agreement. Except as permitted by this
Agreement, the number of shares of Company Common Stock outstanding is not
subject to change prior to the Effective Time. Except as permitted by this
Agreement, following the Merger, neither Company nor any of its Subsidiaries
will have any obligation to issue, transfer or sell any shares of its capital
stock pursuant to any employee benefit plan or otherwise.
(b) There are no voting trusts or other agreements or understandings
to which Company or any Subsidiary of Company is a party with respect to the
voting of the capital stock of Company or any Subsidiary of Company.
Section 3.6. Capitalization of Subsidiaries. Except as set forth
in Schedule 3.06, all of the outstanding shares of capital stock of, or other
ownership interests in, each Subsidiary of Company, is owned by Company,
directly or indirectly, free and clear of any Lien (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Company or any
Subsidiary of Company convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Subsidiary of
Company, or (ii) options or other rights to acquire from Company or any
Subsidiary of Company, and no other obligation of Company or any Subsidiary of
Company to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for, any
capital stock, voting securities or ownership interests in, any Subsidiary of
Company (the items in clauses (i) and (ii) being referred to collectively as the
"Company Subsidiary Securities").
Section 3.7. SEC Filings. (a) Company has filed all required
reports, schedules, forms, statements and other documents with the Securities
and Exchange Commission (the "SEC") since July 31, 1996 (the "Company SEC
Documents").
(b) As of its filing date, each Company SEC Document filed pursuant
to the 1934 Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except to the extent that such statements have been modified or superseded by a
later filed Company SEC Document.
(c) Each Company SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act as of the
date such registration statement or amendment became effective did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent that such statements have been modified or
superseded by a later filed Company SEC Document.
Section 3.8. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements of
Company included in Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1997 (the "Company 10-K") and its Quarterly Report on Form 10-Q
for the fiscal quarter ended October 31, 1997 have been prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Company and its consolidated Subsidiaries as
of the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject to normal year-end adjustments in the case
of any unaudited interim financial statements). For purposes of this Agreement,
"Company Balance Sheet" means the consolidated balance sheet of Company as of
July 31, 1997 set forth in the Company 10-K and "Company Balance Sheet Date"
means July 31, 1997.
Section 3.9. Disclosure Documents. Neither the proxy statement of
Company (the "Company Proxy Statement") to be filed with the SEC in connection
with the Merger, nor any amendment or supplement thereto, will, at the date the
proxy statement or any such amendment or supplement is first mailed to
shareholders of Company or at the time such shareholders vote on the adoption
and approval of this Agreement and the transactions contemplated hereby, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company Proxy Statement will,
when filed, comply as to form in all material respects with the requirements of
the 1934 Act. No representation or warranty is made by Company in this Section
3.09 with respect to statements made or incorporated by reference therein based
on information supplied by Parent or Merger Subsidiary for inclusion or
incorporation by reference in the Company Proxy Statement.
Section 3.10. Information Supplied. None of the information
supplied or to be supplied by Company for inclusion or incorporation by
reference in the Form S-4 (as hereinafter defined) or any amendment or
supplement thereto will, at the time the Form S-4 or any such amendment or
supplement becomes effective under the 1933 Act or at the Effective Time,
contain any 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.
Section 3.11. Absence of Certain Changes. Except as disclosed in
the Company SEC Documents filed prior to the date of this Agreement or as
disclosed in Schedule 3.11, since the Company Balance Sheet Date, Company and
its Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development which,
individually or in the aggregate, has had or would be reasonably
likely to have a Material Adverse Effect on Company, except for
general economic changes, changes that affect the industry of
Company or any of its Subsidiaries generally, and changes in
Company's business after the date hereof attributable solely to
the execution of this Agreement or actions taken by Parent;
(b) except for a dividend payable in Company Common
Stock on the Company Common Stock (all effects of which are
reflected in Section 3.05 of this Agreement) and an increase to
$.06 per share of the regular quarterly cash dividend on the
Company Common Stock, each as authorized by the Company's Board
of Directors in December 1997, any declaration, setting aside or
payment of any dividend or other distribution with respect to any
shares of capital stock of Company, or any repurchase, redemption
or other acquisition by Company or any Subsidiary of Company of
any amount of outstanding shares of capital stock or other equity
securities of, or other ownership interests in, Company or any
Subsidiary of Company;
(c) any amendment of any term of any outstanding
security of Company or any Subsidiary of Company that would
increase the obligations of Company or such Subsidiary under such
security;
(d) (x) any incurrence or assumption by Company or any
Subsidiary of Company of any indebtedness for borrowed money
other than under existing credit facilities (or any renewals,
replacements or extensions that do not increase the aggregate
commitments thereunder) (A) in the ordinary course of business
consistent with past practices (it being understood that any
indebtedness incurred prior to the date hereof in respect of
capital expenditures disclosed in writing to Parent shall be
considered to have been in the ordinary course of business
consistent with past practice) or (B) in connection with (1) any
acquisition or capital expenditure permitted by Section 5.01 or
(2) the transactions contemplated hereby, or (y) any guarantee,
endorsement or other incurrence or assumption of liability
(whether directly, contingently or otherwise) by Company or any
Subsidiary of Company for the obligations of any other Person
(other than any wholly owned Subsidiary of Company), other than
in the ordinary course of business consistent with past practice;
(e) any creation or assumption by Company or any
Subsidiary of Company of any Lien on any material asset of
Company or any Subsidiary of Company other than in the ordinary
course of business consistent with past practices;
(f) any making of any loan, advance or capital
contribution to or investment in any Person by Company or any
Subsidiary of Company other than (i) any acquisition permitted by
Section 5.01, (ii) loans, advances or capital contributions to or
investments in wholly-owned Subsidiaries of Company or (iii)
loans or advances to employees of Company or any Subsidiary of
Company made in the ordinary course of business consistent with
past practices;
(g) (i) any contract or agreement entered into by
Company or any Subsidiary of Company on or prior to the date
hereof relating to any material acquisition or disposition of any
assets or business or (ii) any modification, amendment,
assignment, termination or relinquishment by Company or any
Subsidiary of Company of any contract, license or other right
(including any insurance policy naming it as a beneficiary or a
loss payable payee) that would be reasonably likely to have a
Material Adverse Effect on Company, other than, in the case of
(i) and (ii), transactions, commitments, contracts or agreements
in the ordinary course of business consistent with past practice
and those contemplated by this Agreement;
(h) any material change in any method of accounting or
accounting principles or practice by Company or any Subsidiary of
Company, except for any such change required by reason of a
change in GAAP; or
(i) except for items permitted by Section 5.17, any (i)
grant of any severance or termination pay to any director,
officer or employee of Company or any of its Subsidiaries, (ii)
entering into of any employment, deferred compensation or other
similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of Company or
any of its Subsidiaries, (iii) increase in benefits payable under
any existing severance or termination pay policies or employment
agreements or (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of Company
or any of its Subsidiaries other than, in the case of clause (iv)
only, increases prior to the date hereof in compensation, bonus
or other benefits payable to employees of Company or any of its
Subsidiaries in the ordinary course of business consistent with
past practice or merit increases in salaries of employees at
regularly scheduled times in customary amounts consistent with
past practices.
Section 3.12. No Undisclosed Material Liabilities. There have
been no liabilities or obligations (whether pursuant to contracts or otherwise)
of any kind whatsoever incurred by Company or any Subsidiary of Company since
the Company Balance Sheet Date, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than:
(a) liabilities or obligations disclosed or provided
for in the Company Balance Sheet or in the notes thereto or in
the Company SEC Documents filed prior to the date hereof;
(b) liabilities or obligations which, individually and
in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect on Company; or
(c) liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 3.13. Litigation. Except as disclosed in the Company SEC
Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Company,
threatened against or affecting, Company or any Subsidiary of Company or any of
their respective properties before any Governmental Authority which,
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect on Company.
Section 3.14. Taxes. (a) Company and each of its Subsidiaries,
and each affiliated group (within the meaning of Section 1504 of the Code) of
which Company or any Subsidiary is or has been a member, has timely filed (or
has had timely filed on its behalf) or will file or cause to be timely filed,
all material Tax Returns required by applicable law to be filed by it prior to
or as of the Effective Time, and all such material Tax Returns are, or will be
at the time of filing, true and complete in all material respects;
(b) Company and each of its Subsidiaries has paid (or has had paid on
its behalf) or, where payment is not yet due, has established or will timely
establish (or has had or will timely have established on its behalf and for its
sole benefit and recourse) an adequate accrual in accordance with GAAP for the
payment of, all material Taxes due with respect to any period ending prior to or
as of the Effective Time;
(c) The federal income Tax Returns of Company and its Subsidiaries
have been examined and settled with the Internal Revenue Service (the "Service")
(or the applicable statutes of limitation for the assessment of federal income
Taxes for such periods have expired) for all years through 1995;
(d) There are no material Liens or encumbrances for Taxes on any of
the assets of Company or its Subsidiaries (other than for current Taxes not yet
due and payable);
(e) Company and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes;
(f) No federal, state, local or foreign audits or administrative
proceedings are presently pending with regard to any material Taxes or Tax
Return of Company or its Subsidiaries and none of them has received a written
notice of any proposed audit or proceeding regarding any pending audit or
proceeding; and
(g) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, franchise, transfer and recording taxes, fees and
charges, and any other taxes, assessment or similar charges imposed by the
Service or any other taxing authority (whether domestic or foreign including any
state, county, local or foreign government or any subdivision or taxing agency
thereof (including a United States possession)) (a "Taxing Authority"), whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest whether paid or received, fines, penalties
or additional amounts, and any joint, several and/or transferee liabilities,
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "Tax Return" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes, including information returns, any documents with respect to or
accompanying payments of estimated Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information.
Section 3.15. Employee Benefit Plans; ERISA. (a) Except as set
forth in Schedule 3.15(a), there are no material employee benefit plans
(including any plans for the benefit of directors or former directors),
arrangements, practices, contracts or agreements (including employment
agreements and severance agreements, incentive compensation, bonus, stock
option, stock appreciation rights and stock purchase plans) of any type
(including plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained by Company, any of its
Subsidiaries or any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with Company would be deemed a "controlled group"
within the meaning of Section 4001(a)(14) of ERISA, or with respect to which
Company or any of its Subsidiaries has or may have a liability (the "Company
Benefit Plans"). Except as disclosed in Schedule 3.15(a) (or as otherwise
permitted by this Agreement): (1) neither Company nor any ERISA Affiliate has
any formal plan or commitment, whether legally binding or not, to create any
additional Company Benefit Plan or modify or change any existing Company Benefit
Plan that would affect any employee or terminated employee of Company or any
ERISA Affiliate; and (2) since October 31, 1997, there has been no change,
amendment, modification to, or adoption of, any Company Benefit Plan, in each
case, that has had, or would be reasonably likely to have, a Material Adverse
Effect on Company.
(b) With respect to each Company Benefit Plan, except as disclosed in
Schedule 3.15(b) or as would not, individually or in the aggregate, have a
Material Adverse Effect on Company: (i) if intended to qualify under Section
401(a), 401(k) or 403(a) of the Code, such plan so qualifies, and its trust is
exempt from taxation under Section 501(a) of the Code; (ii) such plan has been
administered in accordance with its terms and applicable law; (iii) no breaches
of fiduciary duty have occurred; (iv) no prohibited transaction within the
meaning of Section 406 of ERISA has occurred; (v) as of the date of this
Agreement, no lien imposed under the Code or ERISA exists; and (vi) all
contributions and premiums due (including any extensions for such contributions
and premiums) have been made in full.
(c) None of the Company Benefit Plans has incurred any "accumulated
funding deficiency", as such term is defined in Section 412 of the Code, whether
or not waived.
(d) Except as disclosed in Schedule 3.15(d), neither Company nor any
ERISA Affiliate has incurred any liability under Title IV of ERISA (including
Sections 4063-4064 and 4069 of ERISA) that has not been satisfied in full except
as, individually or in the aggregate, would not have or would not be reasonably
likely to have a Material Adverse Effect on Company or that has not been
reflected on Company's consolidated financial statements.
(e) With respect to each Company Benefit Plan that is a "welfare
plan" (as defined in Section 3(1) of ERISA), except as specifically disclosed in
Schedule 3.15(e), no such plan provides medical or death benefits with respect
to current or former employees of Company or any of its Subsidiaries beyond
their termination of employment, other than as may be required under Part 6 of
Title I of ERISA and at the expense of the participant or the participant's
beneficiary and except as would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Company.
(f) Except with respect to payments under the agreements and programs
specified in Schedule 3.15(f), the consummation of the transactions contemplated
by this Agreement will not entitle any individual to severance pay or any tax
"gross-up" payments with respect to the imposition of any tax pursuant to
Section 4999 of the Code or accelerate the time of payment or vesting, or
increase the amount, of compensation or benefits due to any individual with
respect to any Company Benefit Plan.
(g) Except as disclosed in Schedule 3.15(a), there is no Company
Benefit Plan that is a "multiemployer plan", as such term is defined in Section
3(37) of ERISA, or which is covered by Section 4063 or 4064 of ERISA.
(h) Schedule 3.15(h) identifies each collective bargaining agreement
to which Company or any of its Significant Subsidiaries is a party and copies of
each such agreement have been furnished to or made available to Parent. Except
as set forth on Schedule 3.15(h), or except as would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Company,
(i) there is no labor strike, slowdown or work stoppage or lockout against
Company or any of its Significant Subsidiaries and (ii) there is no unfair labor
practice charge or complaint against or pending before the National Labor
Relations Board. As of the date of this Agreement, there is no representation
claim or petition pending before the National Labor Relations Board and, to the
knowledge of Company, no question concerning representation exists with respect
to the employees of Company or any of its Significant Subsidiaries.
Section 3.16. Compliance with Laws; No Default; No Non-Competes.
(a) Neither Company nor any of its Subsidiaries is in violation of or, since
December 31, 1996, has been in violation of or has failed to comply with any
statute, law, ordinance, regulation, rule, judgment, decree, order, writ,
injunction, permit or license or other authorization or approval of any
Governmental Authority applicable to its business or operations, except for
violations and failures to comply that have not had and would not, individually
or in the aggregate, be reasonably likely to result in a Material Adverse Effect
on Company.
(b) Each Company Agreement is a valid, binding and enforceable
obligation of Company and in full force and effect, except where the failure to
be valid, binding and enforceable and in full force and effect would not,
individually or in the aggregate, have a Material Adverse Effect on Company.
None of Company or any of its Subsidiaries is in default or violation of any
term, condition or provision of (i) its respective articles of incorporation or
by-laws or similar organizational documents or (ii) except as disclosed in
Schedule 3.16, any Company Agreement and except, in the case of clause (ii)
above for defaults or violations that, individually or in the aggregate, have
not had and would not be reasonably likely to have a Material Adverse Effect on
Company. Company has all permits and licenses (including pharmaceutical and
liquor licenses and permits) necessary to carry on the business being conducted
at each store location, except where the failure to have such permit or license
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect on Company. Except as disclosed in Schedule 3.16,
neither Company nor any Subsidiary of Company is a party to any agreement that
expressly limits the ability of Company or any Subsidiary of Company to compete
in or conduct any line of business or compete with any Person or in any
geographic area or during any period of time except to the extent that any such
limitation would not be reasonably likely to have a Material Adverse Effect on
Company.
Section 3.17. Finders' Fees. Except for Goldman, Sachs & Co., a
copy of whose engagement agreement has been provided to Parent, no investment
banker, broker, finder, other intermediary or other Person is entitled to any
fee or commission from Company or any Subsidiary of Company upon consummation of
the transactions contemplated by this Agreement.
Section 3.18. Environmental Matters. (a) Except as set forth
in the Company 10-K:
(i) no notice, notification, demand, request for
information, citation, summons or order has been received by, no
complaint has been filed against, no penalty has been assessed
against, and no investigation, action, claim, suit, proceeding or
review is pending or, to the knowledge of Company or any
Subsidiary of Company, is threatened by any Person against,
Company or any Subsidiary of Company with respect to any matters
relating to or arising out of any Environmental Law which,
individually or in the aggregate, would be reasonably likely to
have a Material Adverse Effect on Company;
(ii) no Hazardous Substance has been discharged,
disposed of, dumped, injected, pumped, deposited, spilled,
leaked, emitted or released at, on or under any property now or,
to the knowledge of Company, previously owned, leased or operated
by Company or any Subsidiary of Company, which circumstance,
individually or in the aggregate, would be reasonably likely to
have a Material Adverse Effect on Company; and
(iii) there are no Environmental Liabilities that,
individually or in the aggregate, have had or would be reasonably
likely to have a Material Adverse Effect on Company.
(b) For purposes of this Section, the following terms shall have the
meanings set forth below:
(i) "Company" and "Subsidiary of Company" shall include
any entity which is, in whole or in part, a predecessor of
Company or any of its Subsidiaries;
(ii) "Environmental Laws" means any and all federal,
state, local and foreign law (including common law), treaty,
judicial decision, regulation, rule, judgment, order, decree,
injunction, permit, or governmental restrictions or any agreement
with any governmental authority or other third party, relating to
human health and safety, the environment or to pollutants,
contaminants, wastes or chemicals or toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous substances,
wastes or materials;
(iii) "Environmental Liabilities" means any and all
liabilities of or relating to Company or any Subsidiary of
Company of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, which (A) arise
under or relate to matters covered by Environmental Laws and (B)
arise from actions occurring or conditions existing on or prior
to the Effective Time; and
(iv) "Hazardous Substances" means any pollutant,
contaminant, waste or chemical or any toxic, radioactive,
corrosive, reactive or otherwise hazardous substance, waste or
material, or any substance having any constituent elements
displaying any of the foregoing characteristics, including
petroleum, its derivatives, by-products and other hydrocarbons,
or any substance, waste or material regulated under any
Environmental Laws.
Section 3.19. Assets. The assets, properties, rights and
contracts, including (as applicable), title or leaseholds thereto, of Company
and its Subsidiaries, taken as a whole, are sufficient to permit Company and its
Subsidiaries to conduct their business as currently being conducted with only
such exceptions as are not reasonably likely to have a Material Adverse Effect
on Company. All material real property owned by Company and its Subsidiaries is
owned free and clear of all Liens, except (A) those reflected or reserved
against in the latest balance sheet (or notes thereto) of Company included in
the Company SEC Documents filed prior to the date hereof, (B) taxes and general
and special assessments not in default and payable without penalty or interest,
and (C) Liens that do not materially adversely interfere with any present use of
such property.
Section 3.20. Opinion of Financial Advisor. Company has received
the opinion of Goldman, Sachs & Co. to the effect that, as of the date of such
opinion, the Exchange Ratio to be received by the holders of Shares in
connection with the Merger is fair to such holders from a financial point of
view, and such opinion has not been withdrawn.
Section 3.21. Transactions with Affiliates. Except to the extent
disclosed in the Company SEC Documents filed prior to the date hereof or in
Schedule 3.21, since the Company Balance Sheet Date there have been no
transactions, agreements, arrangements or understandings between Company or its
Subsidiaries, on the one hand, and Company's Affiliates (other than its
wholly-owned Subsidiaries) or other Persons, on the other hand, that would be
required to be disclosed under Item 404 of Regulation S-K under the 1933 Act.
For purposes of this Agreement, the term "Affiliate", when used with respect to
any Person, means any other Person directly or indirectly controlling,
controlled by, or under common control with such Person. As used in the
definition of "Affiliate", the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
Section 3.22. Pooling; Tax Treatment. (a) The Company
intends that the Merger be accounted for under the "pooling of interests"
method under the requirements of Opinion No. 16 (Business Combinations) of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board, and the rules and
regulations of the SEC.
(b) Neither Company nor any of its Affiliates has taken or agreed
to take any action or is aware of any fact or circumstance that would prevent
the Merger from qualifying (i) for "pooling of interests" accounting treatment
as described in (a) above or (ii) as a reorganization within the meaning of
Section 368 of the Code (a "368 Reorganization").
Section 3.23. Pooling Letter. Company has received a letter from
Coopers & Lybrand LLP dated as of the date hereof and addressed to Company, a
copy of which has been delivered to Parent, stating that Coopers & Lybrand LLP
believes that the acquisition of Company by Parent should be treated as a
"pooling of interests" as described in Section 3.22(a).
Section 3.24. Takeover Statutes. The Board of Directors of
Company has duly and validly approved and taken all corporate action required to
be taken by the Board of Directors for the consummation of the transactions
contemplated by the Merger, this Agreement and the Option Agreement, including,
but not limited to, all actions required to render the provisions of Section 775
through Section 784 of the Michigan Law restricting business combinations with
"interested shareholders" inapplicable to such transactions and to provide that
none of Parent, Merger Subsidiary or any of their affiliates shall become an
"interested shareholder" upon the execution and delivery of the Option Agreement
or the acquisition of Company Common Stock pursuant thereto, such that any
business combination thereafter proposed among Parent or Merger Subsidiary or
their affiliates and the Company shall be exempt from the requirements of such
Sections. The Company has taken all action necessary to opt out of Sections 790
through 799 of the Michigan Law in order to render the provisions of such
statutes restricting voting rights of "control shares" inapplicable to Company
Common Stock acquired by Parent, Merger Subsidiary or their affiliates pursuant
to the Merger or the Option Agreement. No other "fair price", "moratorium",
"control share acquisition" or other similar antitakeover statute or regulation
enacted under state or federal laws in the United States (each, a "Takeover
Statute") applicable to Company or any of its Subsidiaries is applicable to the
Merger or the other transactions contemplated hereby.
Section 3.25. Affiliates. Schedule 3.25 sets forth each
Person who, as of the date hereof, is, to the best of Company's knowledge,
deemed to be an Affiliate of Company.
ARTICLE 4
Representations and Warranties of Parent
Parent represents and warrants to Company that:
Section 4.1. Organization and Power. Each of Parent and its
Subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and is in good standing under the laws of the jurisdiction of
its incorporation or organization, and has the requisite corporate or other
power and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. Each of Parent and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate, have
a Material Adverse Effect on Parent. Schedule 4.01 sets forth a complete list of
Parent's Significant Subsidiaries. Parent has delivered to Company true and
complete copies of Parent's and Merger Subsidiary's certificate of incorporation
and bylaws as currently in effect.
Section 4.2. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action, including by resolution
of the Board of Directors of Parent. This Agreement has been duly executed and
delivered by each of Parent and Merger Subsidiary and constitutes a valid and
binding agreement of each of Parent and Merger Subsidiary, enforceable against
Parent or Merger Subsidiary, as applicable, in accordance with its terms
(subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, regardless of
whether in a proceeding at equity or at law). The shares of Parent Common Stock
issued pursuant to the Merger, when issued in accordance with the terms hereof,
will be duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.
Section 4.3. Governmental Authorization. The execution, delivery
and performance by Parent and Merger Subsidiary of this Agreement, and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby, require no action, by or in respect of, or filing with, any Governmental
Authority other than (a) the filing of a certificate of merger with respect to
the Merger with the Michigan Department of Consumer and Industry Services and
appropriate documents with the relevant authorities of other states in which
Merger Subsidiary is qualified to do business; (b) compliance with any
applicable requirements of the HSR Act; (c) compliance with any applicable
requirements of the 1933 Act; (d) compliance with any applicable requirements of
the 1934 Act; (e) compliance with any other applicable securities laws; (f)
those that may be required solely by reason of Company's (as opposed to any
other third party's) participation in the transactions contemplated by this
Agreement; (g) the approval of the relevant pharmacy board, alcoholic beverage
commission and lottery commission in Michigan; (h) actions or filings which, if
not taken or made, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Parent; and (i) filings and
notices not required to be made or given until after the Effective Time.
Section 4.4. Non-contravention. Except as set forth on Schedule
4.04, the execution, delivery and performance by Parent and Merger Subsidiary of
this Agreement do not, and the consummation by Parent and Merger Subsidiary of
the transactions contemplated hereby will not (a) contravene or conflict with
the certificate of incorporation, bylaws or similar organizational documents of
Parent or any of its Subsidiaries, (b) assuming compliance with the matters
referred to in Section 4.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Parent or Merger Subsidiary, (c)
constitute a default (or an event which with notice, the lapse of time or both
would become a default) under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Parent or Merger
Subsidiary or to a loss of any benefit to which Parent or Merger Subsidiary is
entitled under any provision of any agreement, contract or other instrument
binding upon Parent or Merger Subsidiary and which either has a term of more
than one year or involves the payment or receipt of money in excess of
$1,000,000 (a "Parent Agreement") or any license, franchise, permit or other
similar authorization held by Parent or Merger Subsidiary, or (d) result in the
creation or imposition of any Lien on any asset of Parent or Merger Subsidiary,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, losses or
Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
Section 4.5. Capitalization of Parent. (a) The authorized capital
stock of Parent consists of 300,000,000 shares of Parent Common Stock (subject
to any changes in the capital structure of Parent after the date hereof and
prior to the Effective Date that would cause an appropriate adjustment pursuant
to Section 1.06), 120,619 shares of Cumulative Preferred Stock, par value $0.01
per share (the "Parent Preferred Stock"), and 50,000,000 shares of Preference
Stock, par value $1 per share (the "Parent ESOP Preference Stock"). As of the
close of business on December 31, 1997, (i) 172,802,881 shares of Parent Common
Stock are issued and outstanding, 5,680,101 shares of Parent Common Stock are
held in Parent's treasury, 6,160,452 shares of Parent Common Stock are reserved
for issuance upon conversion of shares of Parent ESOP Preference Stock,
9,863,709 shares of Parent Common Stock are reserved for additional grants under
option and other stock-based plans and 5,395,082 shares of Parent Common Stock
are reserved for issuance pursuant to options previously granted pursuant to
Parent option plans, (ii) 5,324,504 shares of Parent ESOP Preference Stock are
issued and outstanding, and (iii) no shares of Parent Preferred Stock are issued
or outstanding. All the outstanding shares of Parent's capital stock are, and
all shares which may be issued pursuant to Parent option plans will be, when
issued in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and non-assessable. Except as set forth in this Section 4.05,
except for the transactions contemplated by this Agreement (including those
permitted in Section 5.02(d)), and except for changes since December 31, 1997
resulting from the exercise of employee and director stock options outstanding
on such date, as of the date hereof, there are outstanding (x) no shares of
capital stock or other voting securities of Parent, (y) no securities of Parent
convertible into or exchangeable for shares of capital stock or voting
securities of Parent, and (z) no options, warrants or other rights to acquire
from Parent, and no preemptive or similar rights, subscriptions or other rights,
convertible securities, agreements, arrangements or commitments of any
character, relating to the capital stock of Parent, obligating Parent to issue,
transfer or sell, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Parent or
obligating Parent to grant, extend or enter into any such option, warrant,
subscription or other right, convertible security, agreement, arrangement or
commitment (the items in clauses (x), (y) and (z) being referred to collectively
as the "Parent Securities"). None of Parent or its Subsidiaries has any
contractual obligation to redeem, repurchase or otherwise acquire any Parent
Securities or any Parent Subsidiary Securities, including as a result of the
transactions contemplated by this Agreement.
(b) Except for the provisions relating to the voting of Parent's ESOP
Preference Stock by the applicable trustee in accordance with the instructions
of plan participants, there are no voting trusts or other agreements or
understandings to which Parent or any Subsidiary of Parent is a party with
respect to the voting of the capital stock of Parent or any Subsidiary of
Parent.
Section 4.6. Capitalization of Subsidiaries. Except as set forth
in Schedule 4.06, all of the outstanding shares of capital stock of, or other
ownership interests in, each Subsidiary of Parent, is owned by Parent, directly
or indirectly, free and clear of any Lien (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Parent or any
Subsidiary of Parent convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Subsidiary of
Parent, or (ii) options or other rights to acquire from Parent or any Subsidiary
of Parent, and no other obligation of Parent or any Subsidiary of Parent to
issue, any capital stock, voting securities or other ownership interests in, or
any securities convertible into or exchangeable for, any capital stock, voting
securities or ownership interests in, any Subsidiary of Parent (the items in
clauses (i) and (ii) being referred to collectively as the "Parent Subsidiary
Securities"). The authorized capital stock of Merger Subsidiary consists of
60,000 shares of Merger Subsidiary Common Stock, of which 100 shares are
outstanding. The number of shares of Merger Subsidiary Common Stock outstanding
is not subject to change prior to the Effective Time.
Section 4.7. SEC Filings. (a) Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1996 (the "Parent SEC Documents").
(b) As of its filing date, each Parent SEC Document filed pursuant to
the 1934 Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except to the extent that such statements have been modified or superseded by a
later filed Parent SEC Document.
(c) Each Parent SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act as of the
date such registration statement or amendment became effective did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent that such statements have been modified or
superseded by a later filed Parent SEC Document.
Section 4.8. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements of
Parent included in Parent's Current Report on Form 8-K (filed on July 17, 1997)
for the fiscal year ended December 31, 1996 (the "Parent 8-K") and its Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1997 have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements). For
purposes of this Agreement, "Parent Balance Sheet" means the consolidated
balance sheet of Parent as of December 31, 1996 set forth in the Parent 8-K.
Section 4.9. Disclosure Documents. (a) The Registration Statement
on Form S-4 of Parent (the "Form S-4") to be filed under the 1933 Act relating
to the issuance of Parent Common Stock in the Merger, that may be required to be
filed with the SEC in connection with the issuance of shares of Parent Common
Stock pursuant to the Merger and any amendments or supplements thereto, will,
when filed, subject to the last sentence of Section 4.09(b), comply as to form
in all material respects with the applicable requirements of the 1933 Act.
(b) Neither the Form S-4 nor any amendment or supplement thereto will
at the time it becomes effective under the 1933 Act or at the Effective Time
contain any 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. No representation or warranty is made by Parent in this Section 4.09
with respect to statements made or incorporated by reference therein based on
information supplied by Company for inclusion or incorporation by reference in
the Form S-4.
Section 4.10. Information Supplied. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in the Company Proxy Statement or any amendment or supplement thereto will, at
the date the Company Proxy Statement or any amendment or supplement thereto is
first mailed to stockholders of Company and at the time such stockholders vote
on the adoption and approval of this Agreement and the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.11. Absence of Certain Changes. Except as disclosed in
the Parent SEC Documents filed prior to the date of this Agreement or as
disclosed in Schedule 4.11 and except in connection with the Permitted Parent
Transactions (as hereinafter defined), since September 30, 1997, Parent and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development which,
individually or in the aggregate, has had or would be reasonably
likely to have a Material Adverse Effect on Parent, except for
general economic changes and changes that affect the industry of
Parent or any of its Subsidiaries generally;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of
capital stock of Parent (other than payment of Parent's regular
quarterly cash dividend on Parent Common Stock, payment of
required dividends on Parent ESOP Preference Stock and any other
changes in the capital structure of Parent that would be
reflected by an appropriate adjustment pursuant to Section 1.06)
or any repurchase, redemption or other acquisition by Parent or
any Subsidiary of Parent of any amount of outstanding shares of
capital stock or other equity securities of, or other ownership
interests in, Parent or any Subsidiary of Parent;
(c) any amendment of any term of any outstanding
security of Parent or any Subsidiary of Parent that would
materially increase the obligations of Parent or such Subsidiary
under such security;
(d) (x) any incurrence or assumption by Parent or any
Subsidiary of Parent of any indebtedness for borrowed money other
than under existing credit facilities (or any renewals,
replacements or extensions thereof that do not materially
increase the commitments thereunder except to the extent of the
amount required to refinance any indebtedness for borrowed money
of Company and its Subsidiaries as of the Closing Date) (A) in
the ordinary course of business consistent with past practices
(it being understood that any indebtedness incurred prior to the
date hereof in respect of capital expenditures shall be
considered to have been in the ordinary course of business
consistent with past practice) or (B) in connection with the
transactions contemplated by this Agreement, or (y) any
guarantee, endorsement or other incurrence or assumption of
liability (whether directly, contingently or otherwise) by Parent
or any Subsidiary of Parent for the obligations of any other
Person (other than any Subsidiary of Parent), other than in the
ordinary course of business consistent with past practice or in
connection with obligations of Company and its Subsidiaries
assumed at the Effective Time;
(e) any creation or assumption by Parent or any
Subsidiary of Parent of any Lien on any material asset of Parent
or any Subsidiary of Parent other than in the ordinary course of
business consistent with past practices;
(f) any making of any loan, advance or capital
contribution to or material investment in any Person by Parent or
any Subsidiary of Parent other than (i) loans, advances or
capital contributions to or investments in wholly-owned
Subsidiaries of Parent or (ii) loans or advances to employees of
Parent or any Subsidiary of Parent made in the ordinary course of
business consistent with past practices;
(g) (i) any contract or agreement entered into by
Parent or any Subsidiary of Parent on or prior to the date hereof
relating to any material acquisition or disposition of any assets
or business or (ii) any modification, amendment, assignment,
termination or relinquishment by Parent or any Subsidiary of
Parent of any contract, license or other right (including any
insurance policy naming it as a beneficiary or a loss payable
payee) that would be reasonably likely to have a Material Adverse
Effect on Parent, other than, in the case of (i) and (ii),
transactions, commitments, contracts or agreements in the
ordinary course of business consistent with past practice and
those contemplated by this Agreement and other than dispositions
of stores acquired in the Revco transaction; or
(h) any material change in any method of accounting or
accounting principles or practice by Parent or any Subsidiary of
Parent, except for any such change required by reason of a change
in GAAP.
Section 4.12. No Undisclosed Material Liabilities. There have
been no liabilities or obligations (whether pursuant to contracts or otherwise)
of any kind whatsoever incurred by Parent or any Subsidiary of Parent since
December 31, 1996, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than:
(a) liabilities or obligations (i) disclosed or
provided for in the Parent Balance Sheet or in the notes thereto,
(ii) disclosed in the Parent SEC Documents filed prior to the
date hereof or (iii) disclosed in Schedule 4.12;
(b) liabilities or obligations which, individually and
in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect on Parent; or
(c) liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 4.13. Litigation. Except as disclosed in the Parent SEC
Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Parent,
threatened against or affecting, Parent or any Subsidiary of Parent or any of
their respective properties before any Governmental Authority which,
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect on Parent.
Section 4.14. Taxes. (a) Parent and each of its Subsidiaries, and
each affiliated group (within the meaning of Section 1504 of the Code) of which
Company or any Subsidiary is or has been a member, has timely filed (or has had
timely filed on its behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by it prior to or as
of the Effective Time, and all such material Tax Returns are, or will be at the
time of filing, true, correct and complete in all material respects;
(b) Parent and each of its Subsidiaries has paid (or has had paid on
its behalf) or, where payment is not yet due, has established or will timely
establish (or has had or will timely have established on its behalf and for its
sole benefit and recourse) an adequate accrual in accordance with GAAP for the
payment of, all material Taxes due with respect to any period ending prior to or
as of the Effective Time;
(c) The federal income Tax Returns of Parent and its Subsidiaries
have been examined by and settled with the Service (or the applicable statutes
of limitation for the assessment of federal income Taxes for such periods have
expired) for all years through 1990;
(d) There are no material Liens or encumbrances for Taxes on any of
the assets of Parent or its Subsidiaries (other than for current Taxes not yet
due and payable);
(e) Parent and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes; and
(f) No federal, state, local or foreign audits or administrative
proceedings are presently pending with regard to any material Taxes or Tax
Return of Parent or its Subsidiaries and none of them has received a written
notice of any proposed audit or proceeding regarding any pending audit or
proceeding.
Section 4.15. Employee Benefits, ERISA. (a) Except as set forth
in Schedule 4.15, there are no material employee benefit plans (including any
plans for the benefit of directors or former directors), arrangements,
practices, contracts or agreements (including employment agreements and
severance agreements, incentive compensation, bonus, stock option, stock
appreciation rights and stock purchase plans) of any type (including plans
described in Section 3(3) of ERISA), maintained by Parent, any of its
Subsidiaries or any ERISA Affiliate, that together with Parent would be deemed a
"controlled group" within the meaning of Section 4001(a)(14) of ERISA, or with
respect to which Parent or any of its Subsidiaries has or may have a liability
(the "Parent Benefit Plans"). Since September 30, 1997 there has been no change,
amendment, modification to, or adoption of, any Parent Benefit Plan, in each
case, that has had, or would be reasonably likely to have, a Material Adverse
Effect on Parent.
(b) With respect to each Parent Benefit Plan, except as would not,
individually or in the aggregate, have a Material Adverse Effect on Parent: (i)
if intended to qualify under Section 401(a), 401(k) or 403(a) of the Code, such
plan so qualifies, and its trust is exempt from taxation under Section 501(a) of
the Code; (ii) such plan has been administered in accordance with its terms and
applicable law; (iii) no breaches of fiduciary duty have occurred; (iv) no
prohibited transaction within the meaning of Section 406 of ERISA has occurred;
(v) as of the date of this Agreement, no Lien imposed under the Code or ERISA
exists; and (vi) all contributions and premiums due (including any extensions
for such contributions and premiums) have been made in full.
(c) None of the Parent Benefit Plans has incurred any "accumulated
funding deficiency", as such term is defined in Section 412 of the Code, whether
or not waived.
(d) Neither Parent nor any ERISA Affiliate has incurred any liability
under Title IV of ERISA (including Sections 4063-4064 and 4069 of ERISA) that
has not been satisfied in full except as, individually or in the aggregate,
would not have or would not be reasonably likely to have a Material Adverse
Effect on Parent or that has not been reflected on Parent's consolidated
financial statements.
(e) With respect to each Parent Benefit Plan that is a "welfare plan"
(as defined in Section 3(l) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of Parent or any of its
Subsidiaries beyond their termination of employment, other than as may be
required under Part 6 of Title I of ERISA and at the expense of the participant
or the participant's beneficiary and except as would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Parent.
(f) The consummation of the transactions contemplated by this
Agreement will not entitle any individual to severance pay or any tax "gross-up"
payments with respect to the imposition of any tax pursuant to Section 4999 of
the Code or accelerate the time of payment or vesting, or increase the amount,
of compensation or benefits due to any individual with respect to any Parent
Benefit Plan.
(g) Except as set forth in Schedule 4.15(g), there is no Parent
Benefit Plan that is a "multiemployer plan", as such term is defined in Section
3(37) of ERISA, or which is covered by Section 4063 or 4064 of ERISA.
(h) Except as set forth in Schedule 4.15(h), neither Parent nor any
of its Significant Subsidiaries is a party to any collective bargaining
agreement. Except as would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Parent, (i) there is no labor
strike, slowdown or work stoppage or lockout against Parent or any of its
Significant Subsidiaries and (ii) there is no unfair labor practice charge or
complaint against or pending before the National Labor Relations Board. As of
the date of this Agreement, there is no representation claim or petition pending
before the National Labor Relations Board and, to the knowledge of Parent, no
question concerning representation exists with respect to the employees of
Parent or any of its Significant Subsidiaries.
Section 4.16. Compliance with Laws; No Default; No Non-Competes.
(a) Neither Parent nor any of its Subsidiaries is in violation of or, since
December 31, 1996, has been in violation of or has failed to comply with, any
statute, law, ordinance, regulation, rule, judgment, decree, order, writ,
injunction, permit or license or other authorization or approval of any
Governmental Authority applicable to its business or operations, except for
violations and failures to comply that would not, individually or in the
aggregate, be reasonably likely to result in a Material Adverse Effect on
Parent.
(b) Each Parent Agreement is a valid, binding and enforceable
obligation of Parent and in full force and effect, except where the failure to
be valid, binding and enforceable and in full force and effect would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. None
of Parent or any of its Subsidiaries is in default or violation of any term,
condition or provision of (i) its respective certificate of incorporation or
by-laws or similar organizational documents or (ii) any Parent Agreement,
except, in the case of clause (ii) above, for defaults or violations that,
individually or in the aggregate, have not had and would not be reasonably
likely to have a Material Adverse Effect on Parent. Parent has all permits and
licenses (including pharmaceutical and liquor licenses and permits) necessary to
carry on the business being conducted at each store location, except where the
failure to have such permit or license would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on Parent.
Neither Parent nor any Subsidiary of Parent is a party to any agreement that
expressly limits the ability of Parent or any Subsidiary of Parent to compete in
or conduct any line of business or compete with any Person or in any geographic
area or during any period of time except to the extent that any such limitation
would not be reasonably likely to have a Material Adverse Effect on Parent after
giving effect to the Merger.
Section 4.17. Finders' Fees. Except for Credit Suisse First
Boston Corporation, no investment banker, broker, finder, other intermediary or
other Person is entitled to any fee or commission from Parent or any Subsidiary
of Parent upon consummation of the transactions contemplated by this Agreement.
Section 4.18. Environmental Matters. (a) Except as set forth
in the Parent 8-K:
(i) no notice, notification, demand, request for
information, citation, summons or order has been received by, no
complaint has been filed against, no penalty has been assessed
against, and no investigation, action, claim, suit, proceeding or
review is pending or, to the knowledge of Parent or any
Subsidiary of Parent, is threatened by any Person, against Parent
or any Subsidiary of Parent with respect to any matters relating
to or arising out of any Environmental Law which, individually or
in the aggregate, would be reasonably likely to have a Material
Adverse Effect on Parent;
(ii) no Hazardous Substance has been discharged,
disposed of, dumped, injected, pumped, deposited, spilled,
leaked, emitted or released at, on or under any property now or,
to the knowledge of Parent, previously owned, leased or operated
by Parent or any Subsidiary of Parent, which circumstance,
individually or in the aggregate, would be reasonably likely to
have a Material Adverse Effect on Parent; and
(iii) there are no Environmental Liabilities that,
individually or in the aggregate, have had or would be reasonably
likely to have a Material Adverse Effect on Parent.
(b) For purposes of this Section, capitalized terms used shall have
the meanings assigned to them in Section 3.18(b), except that in all cases the
word "Parent" shall be substituted for the word "Company".
Section 4.19. Assets. The assets, properties, rights and
contracts, including (as applicable), title or leaseholds thereto, of Parent and
its Subsidiaries, taken as a whole, are sufficient to permit Parent and its
Subsidiaries to conduct their business as currently being conducted with only
such exceptions as would not be reasonably likely to have a Material Adverse
Effect on Parent. All material real property owned by Parent and its
Subsidiaries is owned free and clear of all Liens, except (A) those reflected or
reserved against in the latest balance sheet (or notes thereto) of Parent
included in the Parent SEC Documents filed prior to the date hereof, (B) taxes
and general and special assessments not in default and payable without penalty
or interest, (C) Liens disclosed in Schedule 4.19 and (D) Liens that do not
materially adversely interfere with any present use of such property.
Section 4.20. Accounting Matters. Neither Parent nor any of its
Affiliates has taken or agreed to take any action or is aware of any fact or
circumstance that would prevent the Merger from qualifying for "pooling of
interests" accounting treatment as described in Section 3.22(a).
Section 4.21. Pooling Letter. Parent has received a letter from
KPMG Peat Marwick, LLP dated as of the date hereof and addressed to Parent, a
copy of which has been delivered to Company, stating that, as of the date
hereof, based on their best judgment regarding the application of GAAP and the
published rules and regulations of the SEC relative to matters of accounting for
business combinations, no conditions exist which would preclude Parent from
accounting for the Merger as a "pooling of interests".
Section 4.22. Takeover Statutes. To the best of Parent's
knowledge, no Takeover Statute applicable to Parent or any of its Subsidiaries
is applicable to the Merger or the other transactions contemplated hereby.
Section 4.23. Merger Subsidiary. Merger Subsidiary is a
newly-formed wholly-owned Subsidiary of Parent that has engaged in no business
activities other than as specifically contemplated by this Agreement.
ARTICLE 5
Covenants
Section 5.1. Conduct of Company. Company covenants and agrees
that, from the date hereof until the Effective Time, except as expressly
provided otherwise in this Agreement, including Schedules 3.11 and 5.01 hereto,
or as reasonably necessary for Company to fulfill its obligations hereunder,
Company and its Subsidiaries shall conduct their business in the ordinary course
consistent with past practice and shall use their best efforts to preserve
intact their business organizations and relationships with customers, suppliers,
creditors and business partners and shall use their reasonable efforts to keep
available the services of their present officers and employees. Without limiting
the generality of the foregoing, from the date hereof until the Effective Time,
without the prior written approval of Parent (which approval shall not be
unreasonably withheld):
(a) Company will not adopt or propose any change in its
articles of incorporation or in its bylaws, other than changes
effected to facilitate the Merger;
(b) Company will not, and will not permit any
Subsidiary of Company to, adopt a plan or agreement of complete
or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other material reorganization
of Company or any of its Subsidiaries (other than a liquidation
or dissolution of any Subsidiary or a merger or consolidation
between wholly owned Subsidiaries);
(c) Company will not, and will not permit any
Subsidiary of Company to, make any investment in or acquisition
of any business or stores of any Person or any material amount of
assets (other than inventory), except for (i) acquisitions for
cash of drug store businesses comprising not more than ten stores
in any such business acquisition and (ii) any capital expenditure
permitted by Section 5.01(k);
(d) Company will not, and will not permit any
Subsidiary of Company to, sell, lease, license, close, shut down
or otherwise dispose of any assets (other than inventory) or
stores, except (i) pursuant to existing contracts or commitments
listed on Schedule 5.01 or (ii) sales or other dispositions of
assets or stores in the ordinary course of business consistent
with past practice;
(e) Company will not, and will not permit any
Subsidiary of Company to, declare, set aside or pay any dividend
or other distribution payable in cash, stock or property with
respect to its capital stock other than (i) cash dividends
payable by Company in an aggregate amount not in excess of $.06
per share per calendar quarter and (ii) dividends paid by any
Subsidiary of Company to Company or any wholly-owned Subsidiary
of Company;
(f) Company will not, and will not permit any
Subsidiary of Company to, issue, sell, transfer, pledge, dispose
of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class or series of Company or its
Subsidiaries, other than (i) issuances pursuant to the exercise
of stock-based awards or options (including under the plans
described in Section 3.05(a)) that are outstanding on the date
hereof and are referred to in Section 3.05, (ii) Shares that may
become issuable under Company's Employee Stock Purchase Plan,
(iii) issuances by any Subsidiary of Company to Company or any
wholly-owned Subsidiary of Company, (iv) Shares issuable pursuant
to Company's 401(k) Savings Plan and (v) Shares issuable pursuant
to options granted to newly hired management level employees in
accordance with Company's past practices;
(g) Company will not, and will not permit any
Subsidiary of Company to, redeem, purchase or otherwise acquire
directly or indirectly any of Company's capital stock;
(h) Company will not, and will not permit any
Subsidiary of Company to, close, shut down, or otherwise
eliminate Company's distribution center;
(i) Company will not, and will not permit any
Subsidiary of Company to, move the location, close, shut down or
otherwise eliminate Company's headquarters or effect a general
staff reduction at such headquarters;
(j) except in connection with investments or
acquisitions permitted by Section 5.01(c) or 5.01(d), Company
will not, and will not permit any Subsidiary of Company to, (i)
enter into (or commit to enter into) any new lease or (ii)
purchase or acquire or enter into any agreement to purchase or
acquire any real estate (except, in the case of clauses (i) and
(ii), pursuant to commitments existing and disclosed to Parent in
writing prior to the date hereof or in the ordinary course of
business consistent with past practice);
(k) Company will not, and will not permit any
Subsidiary of Company to, make or commit to make any capital
expenditure (including for store remodelings, store signage and
information systems) except for (i) individual capital
expenditure projects or items not exceeding $1,000,000 per
project or item and $5,000,000 in the aggregate in respect of all
such items or projects, (ii) those projects or items committed to
prior to the date hereof and disclosed in writing to Parent on
Schedule 5.01, (iii) expenditures covered under Section 5.01(c)
or 5.01(j), and (iv) expenditures pertaining to the acquisition
of drug stores consistent with Section 5.01(c) or the opening of
drug stores in the ordinary course of business consistent with
past practice;
(l) Company will not, and will not permit any
Subsidiary of Company to, change any tax election, change any
annual tax accounting period, change any method of tax
accounting, file any amended Tax Return, enter into any closing
agreement, settle any Tax claim or assessment, surrender any
right to claim a Tax refund or consent to any extension or waiver
(other than a reasonable extension or waiver) of the limitations
period applicable to any Tax claim or assessment, if any such
action in this clause (1) would have the effect of materially
increasing the aggregate Tax liability for any taxable year or
materially reducing the aggregate Tax assets of Company and its
Subsidiaries, taken as a whole;
(m) Company will not, and will not permit any
Subsidiary of Company to, increase the compensation or benefits
of any director, officer or employee, except for normal increases
in the ordinary course of business consistent with past practice
or as required under applicable law or existing agreement or
commitment;
(n) Company will not, and will not permit any
Subsidiary of Company to, agree or commit to do any of the
foregoing; and
(o) Company will not, and will not permit any
Subsidiary of Company to take or agree or commit to take any
action that would make any representation and warranty of Company
hereunder inaccurate in any respect at, or as of any time prior
to, the Effective Time.
Section 5.2. Conduct of Parent. From the date hereof until the
Effective Time, except as expressly provided otherwise in this Agreement,
including Schedule 5.02 hereto, or as reasonably necessary for Parent to fulfill
its obligations hereunder, Parent and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their best efforts to preserve intact their business organizations and
relationships with customers, suppliers, creditors and business partners and
shall use their reasonable efforts to keep available the services of their
present officers and employees. It is understood that nothing in this Agreement
will restrict any acquisition or disposition by Parent or any of its
Subsidiaries, in one or more transactions, of any drug store or any drug store
or related business (the "Permitted Parent Transactions"). Without limiting the
generality of the foregoing but subject to the preceding sentence, from the date
hereof until the Effective Time, without the prior written approval of Company
(which approval shall not be unreasonably withheld):
(a) Parent will not adopt or propose any change in its
certificate of incorporation or any material change in its
bylaws, except for the creation of a series of preferred stock in
connection with the adoption of a shareholder rights plan or any
increase in its authorized capital stock;
(b) Parent will not, and will not permit any Subsidiary
of Parent to, adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other material reorganization of Parent or
any of its Subsidiaries (other than a liquidation or dissolution
of any Subsidiary or a merger or consolidation between wholly
owned Subsidiaries);
(c) Parent will not, and will not permit any Subsidiary
of Parent to, issue, sell, transfer, pledge, dispose of or
encumber any additional shares of, or securities convertible into
or exchangeable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of capital stock of any
class or series of Parent or its Subsidiaries, other than (u)
issuances of shares of Parent Common Stock in connection with any
Permitted Parent Transaction, (v) issuances by any Subsidiary of
Parent to Parent or any wholly-owned Subsidiary of Parent, (w)
preferred stock purchase rights and related preferred stock in
connection with the adoption of a shareholder rights plan, (x)
issuances pursuant to the exercise of stock-based awards or
options, including under the plans described in Section 4.05(a),
outstanding on the date hereof or granted as contemplated in
clause (z) below, (y) issuances of shares of Parent Common Stock
upon conversion of shares of Parent ESOP Preference Stock
outstanding on the date hereof, and (z) any grant of options or
other stock based awards in respect of Parent Common Stock to
employees or directors of Parent or any of its Subsidiaries under
Parent's employee and director stock option and other stock-based
plans;
(d) Parent will not, and will not permit any Subsidiary
of Parent to, declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to
its capital stock other than (i) regular quarterly cash dividends
on Parent Common Stock, (ii) required cash dividends on Parent
ESOP Preference Stock, (iii) dividends paid by any Subsidiary of
Parent to Parent or any wholly-owned Subsidiary of Parent and
(iv) in connection with any other changes in the capital
structure of Parent that would cause an appropriate adjustment
pursuant to Section 1.06;
(e) Parent will not, and will not permit any Subsidiary
of Parent to, redeem, purchase or otherwise acquire directly or
indirectly any of Parent's capital stock;
(f) Parent will not, and will not permit any Subsidiary
of Parent to, agree or commit to do any of the foregoing; and
(g) Parent will not, and will not permit any Subsidiary
of Parent to take or agree or commit to take any action that
would make any representation and warranty of Parent hereunder
inaccurate in any respect at, or as of any time prior to, the
Effective Time.
Section 5.3. Stockholder Meeting; Proxy Materials; Form S-4. (a)
Company shall cause a meeting of its shareholders (the "Company Stockholder
Meeting") to be duly called and held as soon as reasonably practicable after the
date of this Agreement for the purpose of voting on the approval and adoption of
this Agreement (the "Company Stockholder Approval"). Except as provided in the
next sentence, the Board of Directors of Company shall recommend approval and
adoption of this Agreement by Company's shareholders. The Board of Directors of
Company shall be permitted to (i) not recommend to Company's shareholders that
they give the Company Stockholder Approval or (ii) withdraw or modify in a
manner adverse to Parent its recommendation to Company's shareholders that they
give the Company Stockholder Approval, only (x) if and to the extent that (i) an
unsolicited bona fide Superior Proposal (as hereinafter defined) from another
Person is pending at such time and (ii) the Board of Directors of the Company by
a majority vote determines in its good faith judgment that it is necessary to so
withdraw or modify its recommendation to comply with its fiduciary duty to
shareholders under applicable law, after receiving the advice of an outside
legal counsel, and (y) if Company, its Subsidiaries and the officers, directors,
employees, investment bankers, consultants and other agents of Company and its
Subsidiaries and the Affiliates of Company over which Company exercises control
complied with their obligations set forth in Section 5.05. In connection with
such shareholder meeting, Company (x) will promptly prepare and file with the
SEC, will use its reasonable best efforts to have cleared by the SEC and will
thereafter mail to its shareholders as promptly as practicable the Company Proxy
Statement and all other proxy materials for such meeting, (y) will use its
reasonable best efforts, subject to the immediately preceding sentence, to
obtain the Company Stockholder Approval and (z) will otherwise comply with all
legal requirements applicable to such meeting.
(b) Subject to the terms and conditions of this Agreement and unless
the Board of Directors of Company shall take any action permitted by the third
sentence of paragraph (a) above, Parent shall (i) promptly prepare and file with
the SEC the Form S-4 with respect to the Parent Common Stock issuable in
connection with the Merger and take any action required to be taken under
applicable state securities laws and the regulations of the NYSE in connection
with such issuance of Parent Common Stock and (ii) use its reasonable best
efforts to have the Form S-4 declared effective under the 1933 Act as promptly
as practicable after the Form S-4 is filed.
Section 5.4. Access to Information. (a) To the extent permitted
by applicable law, from the date hereof until the Effective Time, Company will
give Parent, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the offices,
properties, books and records of Company and its Subsidiaries, will furnish to
Parent, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct Company's employees, auditors,
counsel and financial advisors to cooperate with Parent in its investigation of
the business of Company and its Subsidiaries; provided that no investigation
pursuant to this Section shall affect any representation or warranty given by
Company to Parent hereunder. The foregoing information shall be held in
confidence to the extent required by, and in accordance with, the provisions of
the letter agreement dated January 27, 1998, executed by Parent and Goldman,
Sachs & Co. on behalf of Company (the "Parent Confidentiality Agreement").
(b) To the extent permitted by applicable law, from the date hereof
until the Effective Time, Parent will give Company, its counsel, financial
advisors, auditors and other authorized representatives reasonable access during
normal business hours to the offices, properties, books and records of Parent
and its Subsidiaries, will furnish to Company, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
Parent's employees, auditors, counsel and financial advisors to cooperate with
Company in its investigation of the business of Parent and its Subsidiaries;
provided that no investigation pursuant to this Section shall affect any
representation or warranty given by Parent to Company hereunder. Such
information shall be held in confidence to the extent required by, and in
accordance with, the letter agreement concerning the confidentiality obligations
of Parent between Company and Parent (the "Company Confidentiality Agreement").
Section 5.5. No Solicitation. From the date hereof until the
termination hereof, Company will not and will cause its Subsidiaries and the
officers, directors, employees, investment bankers, consultants and other agents
of Company and its Subsidiaries and the Affiliates of Company over which Company
exercises control not to, directly or indirectly, take any action to solicit,
initiate, encourage or facilitate the making of any Acquisition Proposal or any
inquiry with respect thereto or engage in discussions or negotiations with any
Person with respect thereto, or disclose any non-public information relating to
Company or any Subsidiary of Company or afford access to the properties, books
or records of Company or any Subsidiary of Company to, any Person that has made
or is considering making any Acquisition Proposal; provided that nothing
contained in this Section 5.05 shall prevent Company from furnishing non-public
information to, or entering into discussions or negotiations with, any Person in
connection with an unsolicited bona fide Acquisition Proposal received from such
Person so long as prior to furnishing non-public information to, or entering
into discussions or negotiations with, such Person, (i) the Board of Directors
of the Company by a majority vote determines in its good faith judgement that it
is necessary to do so to comply with its fiduciary duty to shareholders under
applicable law, after receiving the advice of an outside legal counsel, and (ii)
Company receives from such Person an executed confidentiality agreement with
terms no less favorable to Company than those contained in the Parent
Confidentiality Agreement. Nothing contained in this Agreement shall prevent the
Board of Directors of Company from complying with Rule 14e-2 under the 1934 Act
with regard to an Acquisition Proposal; provided that the Board of Directors of
Company shall not recommend that the shareholders of Company tender their shares
in connection with a tender offer except to the extent the Board of Directors of
Company by a majority vote determines in its good faith judgment that such a
recommendation is required to comply with the fiduciary duties of the Board of
Directors to shareholders under applicable law, after receiving the advice of an
outside legal counsel. Company will promptly (and in no event later than 24
hours after receipt of any Acquisition Proposal) notify (which notice shall be
provided orally and in writing and shall identify the Person making such
Acquisition Proposal and set forth the material terms thereof) Parent after
receipt of any Acquisition Proposal, indication that any Person is considering
making an Acquisition Proposal or any request for nonpublic information relating
to Company or any Subsidiary of Company or for access to the properties, books
or records of Company or any Subsidiary of Company by any Person that may be
considering making, or has made, an Acquisition Proposal. Company will keep
Parent fully informed of the status and material terms of any such Acquisition
Proposal or request. In furtherance and not in limitation of the foregoing,
Company shall give Parent at least 24 hours' advance notice of any information
to be supplied to, and at least 48 hours' advance notice of any agreement to be
entered into with, any Person making such Acquisition Proposal (attaching the
most current version of such agreement to such notice). Company will, and will
cause its Subsidiaries and the officers, directors, employees and other agents
of Company and its Subsidiaries and the Affiliates of Company over which Company
exercises control to, immediately cease and cause to be terminated all
discussions and negotiations, if any, that have taken place prior to the date
hereof with any parties with respect to any Acquisition Proposal.
For purposes of this Agreement, "Acquisition Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Company or any Subsidiary of Company or the
acquisition of any equity interest in, or a substantial portion of the assets
of, Company or any Subsidiary of Company, other than the transactions
contemplated by this Agreement and other than an offer for a bona fide de
minimis equity interest, or for an amount of assets not material to Company and
its Subsidiaries taken as a whole, that Company has no reason to believe would
lead to a change of control Company (or to the acquisition of a substantial
portion of the assets of Company and its Subsidiaries). For purposes of this
Agreement, "Superior Proposal" means any bona fide Acquisition Proposal for a
majority or all of the outstanding Shares on terms that the Board of Directors
of Company determines in its good faith judgment (based on the written advice of
a financial advisor of nationally recognized reputation, taking into account all
the terms and conditions of the Acquisition Proposal, including any break-up
fees, expense reimbursement provisions and conditions to consummation) are more
favorable and provide greater value to all Company's stockholders than this
Agreement and the Merger taken as a whole.
Section 5.6. Notices of Certain Events. (a) Company and Parent
shall promptly notify each other of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement;
and
(ii) any notice or other communication from any
Governmental Authority in connection with the transactions
contemplated by this Agreement.
(b) Company shall promptly notify Parent of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge threatened
against, relating to or involving or otherwise affecting Company or any
Subsidiary of Company which, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 3.13 or which
relate to the consummation of the transactions contemplated by this Agreement.
(c) Parent shall promptly notify Company of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge threatened
against, relating to or involving or otherwise affecting Parent or any
Subsidiary of Parent which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 4.13 or which relate to
the consummation of the transactions contemplated by this Agreement.
Section 5.7. Reasonable Best Efforts. (a) Subject to the terms
and conditions of this Agreement, each party will use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Merger and the other transactions contemplated by
this Agreement. In furtherance and not in limitation of the foregoing, each
party hereto agrees to make an appropriate filing of a Notification and Report
Form pursuant to the HSR Act with respect to the transactions contemplated
hereby as promptly as practicable and in any event within ten business days of
the date hereof and to supply as promptly as practicable any additional
information and documentary material that may be requested pursuant to the HSR
Act and to take all other actions necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.
(b) Each of Parent and Company shall, in connection with the efforts
referenced in Section 5.07(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Antitrust Law, use its reasonable best efforts to (i) cooperate
in all respects with each other in connection with any filing or submission and
in connection with any investigation or other inquiry, including any proceeding
initiated by a private party; (ii) keep the other party informed in all material
respects of any material communication received by such party from, or given by
such party to, the Federal Trade Commission (the "FTC"), the Antitrust Division
of the Department of Justice (the "DOJ") or any other Governmental Authority and
of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated hereby; and (iii) permit the other party to review any material
communication given by it to, and consult with each other in advance of any
meeting or conference with, the FTC, the DOJ or any such other Governmental
Authority or, in connection with any proceeding by a private party, with any
other Person. For purposes of this Agreement, "Antitrust Law" means the Sherman
Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade
Commission Act, as amended, and all other federal, state and foreign, if any,
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade or lessening of competition through merger or acquisition.
Section 5.8. Cooperation. Without limiting the generality of
Section 5.07, Parent and Company shall together, or pursuant to an allocation of
responsibility to be agreed between them, coordinate and cooperate in connection
with the preparation of the Company Proxy Statement and the Form S-4, (ii) in
determining whether any action by or in respect of, or filing with, any
governmental body, agency or official, or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement, and (iv) in seeking any such actions, consents,
approvals or waivers or making any such filings, furnishing information required
in connection therewith or with the Company Proxy Statement or the Form S-4 and
seeking timely to obtain any such actions, consents, approvals or waivers.
Section 5.9. Public Announcements. So long as this Agreement is
in effect, Parent and Company will consult with each other before issuing any
press release or making any SEC filing or other public statement with respect to
this Agreement or the transactions contemplated hereby or thereby and, except as
may be required by applicable law, court process or any listing agreement with
any national securities exchange, will not issue any such press release or make
any such SEC filing or other public statement prior to such consultation and
providing the other party with a reasonable opportunity to comment thereon.
Section 5.10. Further Assurances. At and after the Effective
Time, the officers and directors of the Surviving Corporation will be authorized
to execute and deliver, in the name and on behalf of Company or Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of Company or Merger Subsidiary, any other actions
and things to vest, perfect or confirm of record or otherwise in the Surviving
Corporation any and all right, title and interest in, to and under any of the
rights, properties or assets of Company acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger.
Section 5.11. Affiliates; Registration Rights. (a) Company shall
use its best efforts to deliver to Parent, within 15 days of the date hereof, a
letter agreement substantially in the form of Exhibit C-1 hereto executed by
each Person listed on Schedule 3.25.
(b) Parent shall use its best efforts to obtain, within 15 days of
the date hereof, a letter agreement substantially in the form of Exhibit C-2
hereto executed by each Person listed on Schedule 5.11.
(c) Prior to the Closing Date, Company shall cause to be delivered to
Parent a letter identifying, to the best of Company's knowledge, all Persons who
are, at the time of the Company Stockholder Meeting described in Section
5.03(a), deemed to be "affiliates" of Company for purposes of Rule 145 under the
1933 Act (the "1933 Act Affiliates"). Company shall use its reasonable best
efforts to cause each Person who is so identified as a 1933 Act Affiliate to
deliver to Parent on or prior to the Closing Date a letter agreement
substantially in the form of Exhibit C-3 to this Agreement.
(d) At or prior to the Effective Time, Parent shall enter into a
Registration Rights Agreement in the form attached as Exhibit B hereto with the
Persons named therein, so long as those Persons who are required to deliver
letter agreements under clauses (a) and (c) above have delivered such letters.
Section 5.12. Director and Officer Liability. Parent agrees that
at all times after the Effective Time, it shall, or shall cause the Surviving
Corporation and its Subsidiaries to indemnify each Person who is now, or has
been at any time prior to the date hereof, a director or officer of Company or
of any Subsidiary of Company, its successors and assigns (individually an
"Indemnified Party" and collectively the "Indemnified Parties"), to the fullest
extent permitted by law, with respect to any claim, liability, loss, damage,
judgment, fine, penalty, amount paid in settlement or compromise, cost or
expense (including reasonable fees and expenses of legal counsel), whenever
asserted or claimed, based in whole or in part on, or arising in whole or in
part out of, any facts or circumstances occurring at or prior to the Effective
Time whether commenced, asserted or claimed before or after the Effective Time,
including liability arising under the 1933 Act, the 1934 Act or state law. In
the event of any claim, liability, loss, damage, judgment, fine, penalty, amount
paid in settlement or compromise, cost or expense described in the preceding
sentence, Parent shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties promptly after statements are received and otherwise
advance to such Indemnified Party upon request reimbursement of documented
expenses reasonably incurred. Parent shall, or shall cause the Surviving
Corporation to, maintain in effect for not less than six years after the
Effective Time the current policies of directors' and officers' liability
insurance maintained by Company and its Subsidiaries on the date hereof
(provided that Parent may substitute therefor policies with reputable and
financially sound carriers having at least the same coverage and amounts thereof
and containing terms and conditions which are no less advantageous to the
Persons currently covered by such policies as insured) with respect to facts or
circumstances occurring at or prior to the Effective Time; provided that if the
aggregate annual premiums for such insurance during such six-year period shall
exceed 200% of the per annum rate of the aggregate premium currently paid by
Company and its Subsidiaries for such insurance on the date of this Agreement,
then Parent shall cause the Surviving Corporation to, and the Surviving
Corporation shall, provide the most advantageous coverage that shall then be
available at an annual premium equal to 200% of such rate. Parent agrees to pay
all expenses (including fees and expenses of counsel) that may be incurred by
any Indemnified Party in successfully enforcing the indemnity or other
obligations under this Section 5.12. The rights under this Section 5.12 are in
addition to rights that an Indemnified Party may have under the articles of
incorporation, bylaws, or other similar organizational documents of Company or
any of its Subsidiaries or the Michigan Law. The rights under this Section 5.12
shall survive consummation of the Merger and are expressly intended to benefit
each Indemnified Party.
Section 5.13. Obligations of Merger Subsidiary. Parent will take
all action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
Section 5.14. Listing of Stock. Parent shall use its best efforts
to cause the shares of Parent Common Stock to be issued in connection with the
Merger to be approved for listing on the NYSE on or prior to the Closing Date,
subject to official notice of issuance.
Section 5.15. Antitakeover Statutes. The Company, regardless of
any termination of this Agreement (other than a termination of this Agreement
pursuant to Section 7.01(a) or 7.01(e) hereof), shall not (a) take any action
which, in the reasonable judgment of Parent, would impede, interfere with or
attempt to discourage the transactions contemplated by this Agreement or the
Option Agreement, (b) amend, revoke, withdraw or modify the approval of the
Merger and the other transactions contemplated hereby so as to render the
restrictions of Section 775 through Section 784 of the Michigan Law applicable
to Parent, Merger Subsidiary or their affiliates, or to any business combination
proposed by any of them before or after, or as the result of, the execution and
delivery of the Option Agreement or the acquisition of Company Common Stock
pursuant thereto, (c) opt in to Section 790 through Section 799 of the Michigan
law, or (d) take action rendering the requirements of any of the Sections of the
Michigan Law referred to in this Section 5.15 inapplicable to any other Person
or any business combination between the Company and any other Person or its
affiliates. If any Takeover Statute is or may become applicable to the Merger,
each of Parent and Company shall take such actions as are necessary so that the
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of any Takeover Statute on the Merger.
Section 5.16. Tax and Accounting Treatment. Each of Parent and
Company shall not take any action and shall not fail to take any action which
action or failure to act would prevent, or would be reasonably likely to
prevent, the Merger from qualifying (A) for "pooling of interests" accounting
treatment or (B) a 368 Reorganization.
Section 5.17. Employee Benefits. (a) Subject to Section 1.04,
following the Effective Time, Parent shall, or shall cause the Surviving
Corporation to (i) honor all obligations under employment or severance
agreements of Company or its Subsidiaries and (ii) pay all benefits accrued
through the Effective Time under employee benefit plans, programs, policies and
arrangements of Company or its Subsidiaries in accordance with the terms
thereof. In furtherance and not in limitation of the foregoing, Parent agrees to
provide, or cause the Surviving Corporation to provide, employees of Company who
continue to be employed by the Surviving Corporation or its Subsidiaries as of
the Effective Time ("Continuing Employees") for a period of not less than one
year following the Effective Time with compensation and benefits no less
favorable in the aggregate than the compensation and benefits provided at the
Effective Time to similarly situated Parent employees. In addition to the
foregoing, for a period of one year following the Effective Time, Parent shall,
or shall cause the Surviving Corporation or its Subsidiaries to, establish and
maintain a plan to provide severance and termination benefits to all non-union
employees of Company and its Subsidiaries. If Continuing Employees are included
in any benefit plan (including provision for vacation) of Parent or its
Subsidiaries, the Continuing Employees shall receive credit for service prior to
the Effective Time with the Company and its Subsidiaries to the same extent such
service by employees of Parent or its Subsidiaries would count for purposes of
eligibility, vesting, eligibility for retirement and benefit accrual. If
Continuing Employees are included in any medical, dental or health plan other
than the plan or plans they participated in as of the Effective Time, any such
plans shall not include pre-existing condition exclusions, except to the extent
such exclusions were applicable under the similar Company Benefit Plan as of the
Effective Time, and shall provide credit for any deductibles and co-payments
applied or made with respect to each Continuing Employee in the calendar year of
the change.
(b) At the Effective Time, Company's Employee Stock Purchase Plan
shall be terminated with the effect that the then current offering period under
such plan will be terminated effective as of the Effective Time.
(c) Company shall take such action as may be required to amend its
401(k) Plan in order that after the Effective Time (i) no additional
contributions will be allocated to, nor any amounts from other investment
accounts under its 401(k) Plan transferred to, the Company Stock Fund and (ii)
participants in the Plan are permitted to direct that amounts in their Company
Stock Fund account be transferred to any other investment fund available under
the Company's 401(k) Plan subject to applicable rules with respect to the
frequency of such reallocation. As soon as practicable after the Effective Time,
the Continuing Employees shall become participants in Parent's 401(k) Plan and
the Company's 401(k) Plan shall be merged with Parent's 401(k) Plan. Until such
time, Continuing Employees shall continue to participate in the Company's 401(k)
Plan, subject to the modifications described in the preceding language of this
paragraph (c).
Section 5.18. Parent Board of Directors. The Board of Directors
of Parent shall take such corporate actions as are necessary to provide that,
effective at the Effective Time of the Merger, the individual set forth on
Schedule 5.18 shall become a member of the Board of Directors of Parent.
Section 5.19. Combined Financial Results. Parent covenants and
agrees for the benefit of the Persons specified in Schedules 3.25 and 5.11 that,
as promptly as practicable following the Effective Time, and in any event no
later than 40 days after the end of the calendar month in which the Effective
Time occurs, it will publicly release the financial results of Parent and
Company that includes a 30-day period following the Effective Time.
Section 5.20. Charitable Commitment. Parent agrees that for a
period of five years following the Effective Time, Parent will maintain a
charitable commitment within the State of Michigan, such commitment to take the
form of and include contributions, sponsorship of charitable events and similar
activities; provided that Parent shall not be required to expend more than
$600,000 annually in respect of such commitment. Such contributions and
sponsorships shall be under the supervision of a committee of the Parent's board
of directors or any individual designated by such committee.
Section 5.21. Parent's Registration Rights. Company agrees that
it will provide Parent with registration rights with respect to shares of the
Company Common Stock, if any, that are acquired by Parent pursuant to the Option
Agreement. Such registration rights shall be substantially the same as the
registration rights provided by Parent under the Registration Rights Agreement
attached as Exhibit B hereto (treating for that purpose Company as the Issuer
and the Company Common Stock as Registrable Securities thereunder, and
construing the other provisions thereof accordingly).
ARTICLE 6
Conditions to the Merger
Section 6.1. Conditions to the Obligations of Each Party. The
obligations of Company, Parent and Merger Subsidiary to consummate the Merger
are subject to the satisfaction (or waiver by the party for whose benefit the
applicable condition exists) of the following conditions:
(a) this Agreement and the transactions contemplated
hereby shall have been approved and adopted by the shareholders
of Company in accordance with the Michigan Law;
(b) any applicable waiting period under the HSR Act
relating to the transactions contemplated by this Agreement shall
have expired;
(c) no provision of any applicable law or regulation
and no judgment, injunction, order or decree shall prohibit or
enjoin the consummation of the Merger;
(d) there shall not be pending any suit, action or
proceeding by any Governmental Authority, (i) seeking to restrain
or prohibit the consummation of the Merger or any of the other
transactions contemplated by this Agreement, or seeking to obtain
from Parent or Company any damages the amount of which would be
reasonably likely to have a Material Adverse Effect on Company
and Parent, taken as a whole, or (ii) except to the extent
consistent with the obligations of Company and Parent under
Section 5.07, seeking to prohibit or limit the ownership or
operation by Company, Parent or any of their respective
Subsidiaries of, or to compel Parent, Company or any of their
respective Subsidiaries to dispose of or hold separate, any
material portion of the business or assets of Parent, Company or
any of their respective Subsidiaries, as a result of the Merger
or any of the other transactions contemplated by this Agreement;
(e) the Form S-4 shall have been declared effective
under the 1933 Act and no stop order suspending the effectiveness
of the Form S-4 shall be in effect and no proceedings for such
purpose shall be pending before or threatened by the SEC;
(f) the shares of Parent Common Stock to be issued in
the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance; and
(g) (i) Parent shall have received a letter from KPMG
Peat Marwick LLP dated as of the Closing Date and addressed to
Parent, stating that KPMG Peat Marwick LLP believes that the
acquisition of Company by Parent should be treated as a pooling
of interests in conformity with GAAP as described in Accounting
Principles Board Opinion No. 16 and applicable rules and
regulations of the SEC and such letter shall not have been
withdrawn or modified in any material respect and (ii) Company
shall have received a letter from Coopers & Lybrand LLP dated as
of the Closing Date and addressed to Company, stating that
Coopers & Lybrand LLP believes that the acquisition of Company by
Parent should be treated as a pooling of interests in conformity
with GAAP as described in Accounting Principles Board Opinion No.
16 and applicable rules and regulations of the SEC and such
letter shall not have been withdrawn or modified in any material
respect.
Section 6.2. Conditions to the Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or waiver by Parent) of the following
further conditions:
(a) (i) Company shall have performed in all material
respects all of its obligations and complied in all material
respects with all of its covenants hereunder required to be
performed or complied with by it at or prior to the Effective
Time and (ii) the representations and warranties of Company
contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time, as if made at
and as of such time, except (x) for changes specifically
permitted by this Agreement and (y) those representations and
warranties that address matters only as of a particular date
which are true and correct in all material respects as of such
date; and Parent shall have received a certificate signed by an
executive officer of Company to the effect set forth in clauses
(i) and (ii).
Section 6.3. Conditions to the Obligations of Company. The
obligations of Company to consummate the Merger are subject to the satisfaction
(or waiver by Company) of the following further conditions:
(a) (i) Parent shall have performed in all material
respects all of its obligations and complied in all material
respects with all of its covenants hereunder required to be
performed or complied with by it at or prior to the Effective
Time and (ii) the representations and warranties of Parent
contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time, as if made at
and as of such time, except (x) for changes specifically
permitted by this Agreement and (y) those representations and
warranties that address matters only as of a particular date
which are true and correct in all material respects as of such
date; and Company shall have received a certificate signed by an
executive officer of Parent to the effect set forth in clauses
(i) and (ii); and
(b) Company shall have received an opinion of Weil,
Gotshal & Manges LLP in form and substance reasonably
satisfactory to Company, on the basis of certain facts,
representations and assumptions set forth in such opinion which
are consistent with the state of facts existing at the Effective
Time, substantially to the effect that none of its stockholders
shall recognize gain or loss for U.S. federal income tax purposes
on their exchange of Company Common Stock solely for Parent
Common Stock pursuant to the Merger (other than in respect of any
cash paid in lieu of fractional shares). In rendering the
opinions described in the preceding sentence, such counsel may
require and rely upon representations contained in certificates
of officers and principal stockholders of Company, Parent and
their respective Subsidiaries (the certificates substantially in
the form of Exhibits D and E).
ARTICLE 7
Termination
Section 7.1. Termination. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the shareholders of
Company):
(a) by mutual written consent of Company and Parent;
(b) by either Company or Parent,
(i) if the Merger has not been consummated by August
31, 1998 (the "End Date"); or
(ii) if the Company Stockholder Approval shall not have
been obtained by reason of the failure to obtain the required
vote at a duly held meeting of stockholders or any adjournment
thereof;
(c) by either Company or Parent (so long as such party has complied
in all material respects with its obligations under Section 5.07), if
consummation of the Merger would violate or be prohibited by any law or
regulation or if any injunction, judgment, order or decree enjoining Company or
Parent from consummating the Merger is entered and such injunction, judgment,
order or decree shall become final and nonappealable;
(d) by Parent, if the Board of Directors of Company shall have failed
to recommend or withdrawn, or modified or changed in a manner adverse to Parent
its approval or recommendation of this Agreement or the Merger or shall have
recommended a Superior Proposal, or Company shall have entered into a definitive
agreement in respect of an Acquisition Proposal with a Person other than Parent
or its Subsidiaries (or the Board of Directors of Company resolves to do any of
the foregoing); and
(e) by Company, if (i) the Board of Directors of Company authorizes
Company, subject to complying with the terms of this Agreement, to enter into a
binding written agreement concerning a transaction that constitutes a Superior
Proposal and Company notifies Parent in writing that it intends to enter into
such an agreement, attaching the most current version of such agreement to such
notice, (ii) Parent does not make, within 48 hours of receipt of the Company's
written notification of its intention to enter into a binding agreement for a
Superior Proposal, an offer that the Board of Directors of Company determines,
in good faith after consultation with its financial advisors, is at least as
favorable, from a financial point of view, to the shareholders of Company as the
Superior Proposal and (iii) Company prior to such termination pursuant to this
clause (e) pays to Parent in immediately available funds the fees required to be
paid pursuant to Section 8.04. Company agrees (x) that it will not enter into a
binding agreement referred to in clause (ii) above until at least 48 hours after
it has provided the notice to Parent required thereby and (y) to notify Parent
promptly if its intention to enter into a written agreement referred to in its
notification shall change at any time after giving such notification.
The party desiring to terminate this Agreement pursuant to
clauses (b), (c), (d) or (e) of this Section 7.01 shall give written notice of
such termination to the other party in accordance with Section 8.01, specifying
the provision hereof pursuant to which such termination is effected.
Notwithstanding anything else contained in this Agreement, the right to
terminate this Agreement under this Section 7.01 shall not be available to any
party (1) that is in material breach of its obligations hereunder or (2) whose
failure to fulfill its obligations or to comply with its covenants under this
Agreement in all material respects has been the cause of, or resulted in, the
failure to satisfy any condition to the obligations of either party hereunder.
Section 7.2. Effect of Termination. If this Agreement is
terminated pursuant to Section 7.01, this Agreement shall become void and of no
effect with no liability on the part of any party hereto, except that (a) the
agreements contained in this Section 7.02, in Section 5.21 and in Section 8.04
and in the Parent Confidentiality Agreement and the Company Confidentiality
Agreement shall survive the termination hereof, except that nothing in the
Company Confidentiality Agreement shall restrict the exercise by Parent of any
of its rights under this Agreement or the Option Agreement or the transactions
contemplated hereby and thereby and (b) no such termination shall relieve any
party of any liability or damages resulting from any willful material breach by
that party of this Agreement.
ARTICLE 8
Miscellaneous
Section 8.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given:
if to Parent, to:
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Fax: (401) 762-3012
Attention: Thomas M. Ryan, Vice Chairman and
Chief Operating Officer
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Dennis S. Hersch, Esq.
if to Company, to:
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Fax: (248) 637-1634
Attention: Eugene Applebaum
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Fax: (212) 310-8007
Attention: Dennis J. Block, Esq.
and
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Fax: (313) 962-0176
Attention: Alan S. Schwartz, Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 8.01
and the appropriate telecopy confirmation is received or (b) if given by any
other means, when delivered at the address specified in this Section 8.01.
Section 8.2. Entire Agreement; Non-survival of Representations
and Warranties; Third Party Beneficiaries. (a) This Agreement (including any
exhibits hereto), the other agreements referred to in this Agreement and the
Parent Confidentiality Agreement and the Company Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to such
subject matter. None of this Agreement, the Parent Confidentiality Agreement,
the Company Confidentially Agreement or any other agreement contemplated hereby
or thereby (or any provision hereof or thereof) is intended to confer on any
Person other than the parties hereto or thereto any rights or remedies (except
that Article I and Sections 5.12, Section 5.17(a) and Section 5.19 are intended
to confer rights and remedies on the Persons specified therein).
(b) The representations and warranties contained herein or in any
schedule, instrument or other writing delivered pursuant hereto shall not
survive the Effective Time.
Section 8.3. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by Company and Parent or, in the case of a waiver, by the party against whom the
waiver is to be effective; provided that after the adoption of this Agreement by
the stockholders of Company, there shall be made no amendment that by law
requires further approval by stockholders without the further approval of such
stockholders
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 8.4. Expenses. (a) Except as otherwise specified in this
Section 8.04 or agreed in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such cost or expense.
(b) If:
(x) Company shall terminate this Agreement pursuant to
Section 7.01(e);
(y) Parent shall terminate this Agreement pursuant to Section
7.01(d), or
(z) either Company or Parent shall terminate this Agreement
pursuant to Section 7.01(b)(ii) in circumstances where the Company
Stockholder Approval has not been obtained and (1) Company has not
complied with its obligation to recommend the Company Stockholder
Approval in accordance with Section 5.03(a) or (2) prior to the
Company Stockholder Meeting an Acquisition Proposal is made and
Company enters into a definitive agreement in respect of an
Acquisition Proposal with any Person (other than Parent or an
Affiliate of Parent) within twelve months after termination of this
Agreement,
then in any case as described in clause (x), (y) or (z) (each such case of
termination being referred to as a "Trigger Event"), Company shall pay to Parent
(by wire transfer of immediately available funds not later than the date of
termination of this Agreement or, in the case of clause (z)(2), the date of
consummation of the Acquisition Proposal contemplated by such definitive
agreement or, if such definitive agreement contains any conditions relating to
the fee due hereunder, the date of such agreement) an amount equal to $60
million. Acceptance by Parent of the payment referred to in the foregoing
sentence shall constitute conclusive evidence that this Agreement has been
validly terminated and upon acceptance of payment of such amount Company shall
be fully released and discharged from any liability or obligation resulting from
or under this Agreement.
Section 8.5. Successors and Assigns. The provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns; provided that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the written consent of the other
parties hereto except that Parent may assign, in its sole discretion, any or all
of its rights, interests and obligations hereunder to any direct or indirect
wholly owned Subsidiary of Parent, it being understood that no such assignment
shall relieve Parent from any of its obligations hereunder.
Section 8.6. Governing Law. This Agreement shall be construed
in accordance with and governed by the law of the State of Michigan (without
regard to principles of conflict of laws).
Section 8.7. Jurisdiction. Any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated by this
Agreement may be brought against any of the parties in any Federal court located
in the State of Michigan or any Michigan state court, and each of the parties
hereto hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and waives any objection to venue laid therein. Process in any such suit, action
or proceeding may be served on any party anywhere in the world, whether within
or without the State of Michigan. Without limiting the generality of the
foregoing, each party hereto agrees that service of process upon such party at
the address referred to in Section 8.01, together with written notice of such
service to such party, shall be deemed effective service of process upon such
party.
Section 8.8. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
Section 8.9. Interpretation. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of or a
Schedule to this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement they
shall be deemed to be followed by the words "without limitation." The phrases
"the date of this Agreement," "the date hereof" and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to February 8,
1998.
Section 8.10. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. Upon such determination that any term,
provision, covenant or restriction of this Agreement is invalid, void,
unenforceable or against regulatory policy, the parties hereto shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 8.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
Federal court located in the State of Michigan or any Michigan state court, in
addition to any other remedy to which they are entitled at law or in equity.
Section 8.12. Joint and Several Liability. Parent and Merger
Subsidiary hereby agree that they will be jointly and severally liable for all
covenants, agreements, obligations and representations and warranties made by
either of them in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
CVS CORPORATION
By: /s/ Thomas M. Ryan
-------------------------------------
Name: Thomas M. Ryan
Title: Vice Chairman and Chief
Operating Officer
ARBOR DRUGS, INC.
By: /s/ Eugene Applebaum
-------------------------------------
Name: Eugene Applebaum
Title: Chairman, Chief Executive
Officer and President
RED ACQUISITION, INC.
By: /s/ Charles Conaway
-------------------------------------
Name: Charles Conaway
Title: President
EXHIBIT 3
AFFILIATE'S LETTER
(Arbor Drugs, Inc.)
____________, 1998
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Ladies and Gentlemen:
The undersigned has been advised that as of the date of
this letter the undersigned may be deemed to be an "affiliate" of Arbor Drugs,
Inc., a Michigan corporation (the "Company"), as the term "affiliate" is
defined for purposes of paragraphs (c) and (d) of Rule 145 of the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Act"). Pursuant to the terms of the Agreement and Plan of Merger dated
as of February 8, 1998 (the "Agreement") among the Company, CVS Corporation, a
Delaware corporation ("CVS"), and Red Acquisition, Inc., a Michigan
corporation and a wholly owned subsidiary of CVS ("Merger Subsidiary"), Merger
Subsidiary will be merged with and into the Company with the Company to be the
surviving corporation in the merger (the "Merger").
As a result of the Merger, the undersigned will receive shares
of Common Stock, par value $0.01 per share, of CVS (the "CVS Common Stock") in
exchange for shares owned by the undersigned of Common Stock, par value $0.01
per share, of the Company (the "Company Common Stock").
The undersigned represents, warrants and covenants to CVS and
the Company that as of the date the undersigned receives any CVS Common Stock
as a result of the Merger:
A. The undersigned shall not make any sale, transfer or other
disposition of the CVS Common Stock in violation of the Act or the Rules and
Regulations.
B. The undersigned has carefully read this letter and the
Agreement and discussed the requirements of such documents and other applicable
limitations upon the undersigned's ability to sell, transfer or otherwise
dispose of the CVS Common Stock to the extent the undersigned felt necessary
with the undersigned's counsel or counsel for the Company.
C. The undersigned has been advised that the issuance of CVS
Common Stock to the undersigned pursuant to the Merger will be registered with
the Commission under the Act on a Registration Statement on Form S-4.
However, the undersigned has also been advised that, since at the time the
Merger is submitted for a vote of the stockholders of the Company, the
undersigned may be deemed to be an affiliate of the Company, the undersigned
may not sell, transfer or otherwise dispose of the CVS Common Stock issued to
the undersigned in the Merger unless (i) such sale, transfer or other
disposition has been registered under the Act, (ii) such sale, transfer or
other disposition is made in conformity with Rule 145 promulgated by the
Commission under the Act, or (iii) in the opinion of counsel reasonably
acceptable to CVS, or pursuant to a "no action" letter obtained by the
undersigned from the staff of the Commission, such sale, transfer or other
disposition is otherwise exempt from registration under the Act.
D. The undersigned understands that CVS is under no obligation
to register the sale, transfer or other disposition of the CVS Common Stock by
the undersigned or on the undersigned's behalf under the Act or to take any
other action necessary in order to enable such sale, transfer or other
disposition by the undersigned in compliance with an exemption from such
registration, other than pursuant to and in accordance with the Registration
Rights Agreement dated as of ___________, 1998 between CVS and the holders
referred to therein.
E. The undersigned also understands that there will be placed
on the certificates for the CVS Common Stock issued to the undersigned or any
substitution thereof, a legend stating in substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933 APPLIES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF ONLY IN
ACCORDANCE WITH THE TERMS OF A LETTER AGREEMENT BETWEEN THE
REGISTERED HOLDER HEREOF AND CVS CORPORATION , A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF CVS CORPORATION."
F. The undersigned also understands that unless the transfer by
the undersigned of the undersigned's CVS Common Stock has been registered under
the Act or is a sale made in conformity with the provisions of Rule 145 under
the Act, CVS reserves the right to put the following legend on the certificates
issued to the undersigned's transferee:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM
A PERSON WHO RECEIVED SUCH SECURITIES IN A TRANSACTION TO WHICH
RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES.
THE SECURITIES HAVE NOT BEEN ACQUIRED BY THE HOLDER WITH A VIEW
TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
OF 1933."
It is understood and agreed that the legends set forth in
paragraphs E and F above shall be removed by delivery of substitute
certificates without such legend if (i) the securities represented thereby
have been registered for sale by the undersigned under the 1933 Act or (ii)
CVS has received either an opinion of counsel, which opinion and counsel shall
be reasonably satisfactory to CVS, or a "no-action" letter obtained by the
undersigned from the staff of the Commission, to the effect that the
restrictions imposed by Rule 145 under the Act no longer apply to the
undersigned.
G. The undersigned further understands and agrees that the
representations, warranties, covenants and agreements of the undersigned set
forth herein are for the benefit of CVS, the Company and the Surviving
Corporation (as defined in the Merger Agreement) and will be relied upon by
such entities and their respective counsel and accountants.
H. The undersigned understands and agrees that this letter
agreement shall apply to all shares of the capital stock of CVS and the Company
that are deemed to be beneficially owned by the undersigned pursuant to
applicable federal securities laws.
Execution of this letter should not be considered an admission
on the part of the undersigned that the undersigned is an "affiliate" of the
Company as described in the first paragraph of this letter or as a waiver of
any rights the undersigned may have to object to any claim that the
undersigned is such an affiliate on or after the date of this letter.
Very truly yours,
By: __________________________
Name:
Accepted this ____ day of
____________, 1998.
CVS CORPORATION
By:________________________________
Name:
Title:
