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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-1011
CVS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 05-0494040
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One CVS Drive
Woonsocket, Rhode Island 02895
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 765-1500
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value
$.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock* held by
non-affiliates** of the registrant (without admitting that any person whose
shares are not included in such calculation is an affiliate) on March 2, 1998
was approximately $12,669,785,088, based on the last sale price as reported by
the New York Stock Exchange.
As of March 2, 1998, the registrant had 172,557,470 shares of Common
Stock outstanding.
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* Does not include 5,324,504 outstanding shares of Series One ESOP
Convertible Preference Stock ("ESOP Preference Stock"). As of
March 2, 1998, each share of ESOP Preference Stock is entitled to 1.2 votes
per share on all matters submitted to a vote of the holders of Common
Stock.
** Only voting stock held by directors and executive officers is excluded.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents (or parts thereof) are incorporated by reference
into this Annual Report on Form 10-K: certain information required in Part
II, Items 6, 7 and 8; and Part IV, Item 14 of this Annual Report on Form 10-K
is incorporated from the Registrant's Annual Report to Shareholders for the
year ended December 31, 1997; certain information required in Part III, Items
10, 11, 12 and 13 of this Annual Report on Form 10-K is incorporated by
reference to the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders, to be held on May 13, 1998.
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PART I
ITEM 1. BUSINESS
GENERAL
CVS Corporation, a Delaware corporation ("CVS" or the "Company"), is a
leader in the chain drugstore industry in the United States, with over $12.7
billion in revenue in 1997. Additionally, as of December 31, 1997, the Company
operated 3,888 stores in 24 states in the Northeast, Mid-Atlantic, Midwest and
Southeast regions and in the District of Columbia, making CVS one of the largest
drugstore chains in the nation in terms of store count. The Company's stores are
well positioned, operating in 48 of the top 100 drugstore markets in the
country. CVS commands the number one or two share position in approximately 80%
of these markets. CVS also is among the industry leaders in terms of store
productivity and operating profit margin.
A primary focus of the Company's operations is its pharmacy business, which
represented approximately 54% of total sales for the year. In 1997, the Company
dispensed over 225 million prescriptions, making it the largest drugstore chain
in the United States in terms of prescriptions filled and pharmacy sales. The
Company believes that its pharmacy operations will continue to represent a
critical part of its business and strategy due to favorable trends, including an
aging American population, greater responsibility being borne by Americans for
their healthcare, an increasing demand for retail formats that provide easy
access and convenience, discovery of new and better drug therapies, and the need
for cost effective healthcare solutions.
In addition to prescription drugs and services, the Company offers a broad
selection of general merchandise, presented in a well-organized fashion, in
stores that are designed to be warm, inviting and easy to shop. Merchandise
categories include, among other things, over-the-counter drugs, greeting cards,
film and photo-finishing services, beauty and cosmetics, seasonal merchandise
and convenience foods. The Company also offers over 1,300 products under the CVS
private label brand, which accounted for approximately 11% of the Company's
front store sales in 1997. Total front store sales, which are generally higher
margin than pharmacy sales, represented approximately 46% of total sales for the
year.
The Company's principal executive offices are located at One CVS Drive,
Woonsocket, Rhode Island 02895, telephone (401) 765-1500. As of December 31,
1997, the Company and its subsidiaries had approximately 90,000 employees.
CVS STRATEGIC RESTRUCTURING PROGRAM
In October 1995, the Board of Directors approved a comprehensive
restructuring plan that was the product of a strategic review initiated in 1994.
The purpose of the restructuring plan was, among other things, to enhance
stockholder value by transforming Melville Corporation ("Melville") from a
diversified retailer with a wide range of specialty retail businesses into an
industry-focused retail healthcare company, CVS. The restructuring plan
included, among other things:
(i) the continued operation of CVS (which would include CVS and, initially,
Linens 'n Things and Bob's Stores);
(ii) the disposal of Marshalls, Kay-Bee Toys, Wilsons and This End Up;
(iii) the spinoff of Footstar, Inc. (the holding company for Meldisco,
Footaction and Thom McAn); and
(iv) the elimination of certain corporate overhead costs.
In May 1996, the Board of Directors approved further refinements to the
restructuring plan. The refinements included: (i) a formal plan to separate
Linens 'n Things and Bob's Stores from CVS; and (ii) a formal plan to convert
80 to 100 Thom McAn stores to the Footaction format and to sell or close the
remaining Thom McAn stores, and thereby exit the Thom McAn business by
mid-1997.
On November 20, 1996, following shareholder approval, CVS, a newly-formed
Delaware corporation, became the new holding company for Melville (which is a
New York corporation) and its subsidiaries. This was accomplished by merging a
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special purpose subsidiary of CVS with and into Melville, with Melville
surviving such merger and becoming a wholly-owned subsidiary of CVS.
For more information regarding the Company's strategic restructuring
program, see Note 3 of Notes to Consolidated Financial Statements.
ACQUISITION OF REVCO D.S., INC.
On May 29, 1997, CVS completed its acquisition of Revco D.S., Inc. ("Revco")
pursuant to a stock-for-stock merger that was tax free to Revco's stockholders.
The merger was accounted for as a pooling of interests.
The merger resulted in CVS becoming one of the largest chain drugstore
companies in the United States based on store count, with approximately 4,000
stores in 24 states and the District of Columbia. Pursuant to a consent
decree with the Federal Trade Commission entered into in connection with the
merger, the Company divested 120 Revco stores during 1997, primarily in the
Tidewater area of Virginia.
In the merger, each outstanding share of Revco common stock was exchanged
for 0.8842 of a share of CVS common stock, resulting in CVS issuing an aggregate
of approximately 60.3 million shares of its common stock. In addition,
outstanding Revco stock options were converted at the same exchange ratio into
options to purchase approximately 3.3 million shares of CVS common stock.
AGREEMENT TO ACQUIRE ARBOR DRUGS, INC.
On February 8, 1998, CVS entered into an Agreement and Plan of Merger with
Arbor Drugs, Inc. ("Arbor"). Under the terms of the merger agreement, subject to
satisfaction of certain customary closing conditions, CVS will acquire Arbor in
an exchange of stock that is expected to be accounted for as a pooling of
interests, and to be tax free to Arbor stockholders. If the merger is completed,
Arbor stockholders will receive, for each Arbor share, 0.3182 of a share of
CVS common stock, resulting in CVS issuing an aggregate of approximately 18.9
million shares of its common stock. In addition, outstanding Arbor stock
options will be converted at the same exchange ratio into options to purchase
approximately 2.6 million shares of CVS common stock.
Arbor is the leading drugstore chain in southeastern Michigan in terms of
store count and sales volume. The merger would strengthen CVS' position as one
of the nation's leading chain drugstore companies by bringing CVS into a
high-growth, contiguous geographic market where CVS has no existing presence.
The merger is subject to approval by Arbor's shareholders, expiration of
the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and certain other customary closing
conditions. Subject to satisfying these conditions, management expects to
complete the merger on or about March 31, 1998.
PHARMACY OPERATIONS AND MANAGED CARE
In 1997, pharmacy sales increased 23.6% to $6.9 billion, representing
approximately 54% of total sales for the year, compared to pharmacy sales of
$5.6 billion in 1996, representing approximately 51% of total sales for such
year. CVS pharmacies fill an average of about 1,200 prescriptions per store per
week, which is significantly higher than the average community pharmacy. The
Company believes that its pharmacy operations will continue to represent a
critical part of its business and strategy due to favorable trends, including an
aging American population, greater responsibility being borne by Americans for
their healthcare, an increasing demand for retail formats that provide easy
access and convenience, discovery of new and better drug therapies, and the need
for cost effective healthcare solutions.
During fiscal 1997, approximately 80% of pharmacy sales were attributable
to payments by third party providers under prescription drug plans, as
compared to approximately 76% in 1996. The growth in managed care has
substantially increased the use of prescription drugs as managed care
providers have (i) made the cost of prescription drugs more affordable to a
greater number of people and (ii) supported prescription drug therapy as an
alternative to more expensive forms of treatment, such as surgery. In a
typical third party payment plan, the Company has a contract with a third
party payor, such as an insurance company, a prescription benefit management
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company, a governmental agency, a private employer, a health maintenance
organization or other managed care provider, which agrees to pay for all or a
portion of a customer's eligible prescription purchases in exchange for
reduced prescription rates. Although third party payment plans provide a high
volume of prescription drug sales, such sales typically generate lower gross
margins than other prescription drug sales due to the cost containment
efforts of these large third party payors and the increasing competition
among pharmacies for this business. During 1997, the top 5 third party
providers accounted for approximately 36% of pharmacy sales. Any significant
loss of third party provider business could have a material adverse affect on
the Company's business and results of operations.
CVS' experience in providing solutions to managed care providers, and its
existing store base which affords easy access and convenience to consumers,
are factors that should contribute to the Company's continued ability to
attract and maintain third party business. In addition, the Company's RX2000
pharmacy computer system facilitates the management of third party healthcare
plans and enables CVS to provide managed care providers with a level of
information which the Company believes is unmatched by competitors. By
analyzing this data, CVS and its managed care partners are able to evaluate
treatment outcomes with an eye toward improving care and containing costs.
The Company's emphasis on customer service extends from the expert advice and
service that individual customers receive from CVS pharmacists to the managed
care portion of the Company's business, where Managed Care Service Teams are
responsible for ensuring the high level of service that CVS' managed care
partners receive.
The Company's pharmacy business also continues to benefit from an
"independent file buy" program, in which CVS purchases prescription files from
one or more independent pharmacies. During 1997, CVS purchased 190 prescription
files, containing an average weekly prescription count of nearly 500, from
independent pharmacies. The Company believes that independent file buys are
productive investments. In many cases, the independent pharmacist will move to
CVS, thereby providing continuity in the pharmacist-patient relationship.
PHARMACARE AND STRATEGIC HEALTHCARE ALLIANCES
CVS is committed to being part of an integrated healthcare approach that
brings together industry participants such as physicians, pharmaceutical
companies, managed care providers and pharmacies in order to provide patients
with the best possible care at the lowest cost. The Company's efforts to date
have primarily concentrated on two main areas: (i) the operation and expansion
of PharmaCare, the Company's prescription benefit management subsidiary and (ii)
the creation of strategic alliances with healthcare partners.
PharmaCare provides managed care providers a full range of prescription
benefit management services, including plan design and administration, formulary
management, claims processing and generic substitution, with a focus on
providing integrated solutions to the delivery of healthcare. In the three and a
half years since it was established, PharmaCare has grown considerably and, at
the end of 1997, managed healthcare services for more than 5 million people
through a preferred national pharmacy network of approximately 40,000
pharmacies. In December 1997, PharmaCare merged with Revco's prescription
benefit management subsidiary, called Rx Connections, and also assumed Revco's
mail order pharmacy operations, thereby strengthening and broadening
PharmaCare's services network.
One of the features that sets PharmaCare apart from other prescription
benefit management providers is its proprietary Clinical Information Management
System ("CIMS"). CIMS enables CVS pharmacists to work more efficiently with
physicians by facilitating communication and information-sharing, with the
objective of improving patient care and reducing costs. Approximately 20,000
physicians are currently using CIMS, which began with only 500 physicians in
1994. In addition, PharmaCare plays an increasing role in healthcare management
through integrated partnerships with several large managed care providers.
CVS also pursues strategic alliances with healthcare partners to develop
products and services that create new opportunities for revenue and profit
growth. For example, CVS has entered into a joint venture, called CVS Health
Connection, with Pfizer Health Solutions, Inc., a subsidiary of Pfizer, Inc.
Through this partnership, community health screening centers are established in
CVS store settings. The first CVS Health Connection center opened in September
1997 in a New Bedford, Massachusetts CVS store. Harvard Pilgrim Healthcare, one
of the nation's largest and most progressive HMOs, has contracted to offer
health screening services through this center to its members.
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FRONT STORE OPERATIONS
In 1997, front store sales increased 8.8% to $5.8 billion, representing
approximately 46% of total sales for the year, compared to front store sales of
$5.3 billion in 1996, representing approximately 49% of total sales for such
year. The Company's front store merchandising strategies are designed to improve
customer satisfaction, selection and convenience, and establish CVS stores as a
destination for a growing number of front store merchandise categories, such as
greeting cards, photo-finishing, beauty, seasonal merchandise and
over-the-counter drugs. The Company's 10,125 square-foot freestanding prototype
stores have helped to enable the Company to improve store layout, convenience
and selection through the addition of product categories and the enhancement of
assortments within product categories. In addition, over the past several years,
the Company has made significant investments in systems and technology to more
effectively respond to customer needs, manage inventory and control costs.
Through its point-of-sale scanning technology, the Company has developed an
advanced retail data warehouse of information that has enabled CVS to adopt a
category management approach to front end merchandising. Through category
management, CVS works in partnership with major suppliers to refine and tailor
assortments within product categories to the specific purchasing preferences of
customers within each market. Category management enables the Company to analyze
the impact of pricing, promotion and mix on a category's sales and profitability
and develop tactical merchandising plans for each category by market. Among CVS'
key destination categories are over-the-counter drugs, greeting cards, film and
photo-finishing services, beauty and cosmetics and convenience foods.
The Company believes that effective category management increases
customer satisfaction and that its category management approach has been a
primary factor in its front store comparable sales gains and improved gross
margins. In addition, the Company believes that its ability to satisfy
customers through category management will be enhanced through its
implementation of supply chain management. Supply chain management is
designed to more effectively link CVS' stores and distribution centers with
suppliers to speed the delivery of merchandise to CVS stores in a manner that
both reduces out-of-stock positions and lowers the Company's investment in
inventory. The Company expects to see tangible benefits of its supply chain
management project beginning in 1998.
CVS STORES
At December 31, 1997, the Company operated 3,888 stores in 24 states in the
Northeast, Mid-Atlantic, Midwest and Southeast regions and the District of
Columbia, making CVS one of the nation's largest chain drugstore companies based
on store count. CVS stores, which are located primarily in "strip" shopping
centers or in freestanding units, generally range in size from approximately
8,000 to 10,000 square feet, with an average store size of approximately 9,000
square feet. The Company has extended store hours in many locations and, at the
end of 1997, approximately 160 of its stores were operated on a 24-hour basis.
The following is a breakdown by state of the locations of the Company's stores
at the end of 1997:
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<S> <C> <C> <C>
Alabama.............................. 164 New Hampshire........................ 30
Connecticut.......................... 118 New Jersey........................... 175
Delaware............................. 3 New York............................. 340
District of Columbia................. 46 North Carolina....................... 309
Florida.............................. 23 Ohio................................. 395
Georgia.............................. 316 Pennsylvania......................... 317
Illinois............................. 69 Rhode Island......................... 50
Indiana.............................. 298 South Carolina....................... 188
Kentucky............................. 68 Tennessee............................ 148
Maine................................ 20 Vermont.............................. 2
Maryland............................. 170 Virginia............................. 258
Massachusetts........................ 314 West Virginia........................ 63
Mississippi.......................... 4
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To support growth in its existing stores, the Company has in place an active
remodeling and remerchandising program, which seeks to remodel 20% of the
Company's existing stores each year and to remerchandise another 20% each year.
In addition, as described more fully below, the Company is actively seeking to
relocate many of its strip center locations to freestanding sites. During 1997,
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the Company opened 287 new stores, including 116 relocations, and in 1998
expects to open approximately 300 new stores, including approximately 150
relocations. During 1997, the Company also began the process of converting
all retained Revco stores into the CVS store format. The conversion process
consists of three elements: converting the Revco point-of-sale and pharmacy
computer systems to CVS' systems, revising the Revco planograms to reflect
the CVS merchandise mix, and remodeling the Revco stores to the "look and
feel" of a CVS store. The conversion of Revco's systems has been completed
and the revision of planograms is expected to be completed during the first
half of 1998. Approximately 500 Revco stores had been remodeled into the CVS
"look and feel" as of December 31, 1997, and the Company expects to complete
the Revco store remodeling project by the end of 1998.
The addition of new stores has played, and will continue to play, a major
role in the Company's continued growth. As new stores have been opened, the
Company has maintained its objective of securing strong positions in each
market that its stores serve. This provides the Company several important
advantages, including an ability to save on advertising and distribution
costs. It is also an important consideration for managed care providers, who
want to provide their members with convenient access to pharmacy services.
Management anticipates that most of the planned store openings will be based
on CVS' 10,125 square foot freestanding prototype, which includes a
drive-thru pharmacy. New sites will be selected based on convenience, with an
emphasis on freestanding locations at traffic controlled intersections.
Management expects that relocations of existing in-line strip center
stores to freestanding locations will account for approximately 50% of store
openings over the next several years. Historically, as a result of their more
convenient locations and larger size, relocated stores have typically
realized significant improvement in customer count and revenues, driven
largely by increased sales of higher margin front store merchandise.
Management expects this trend to continue, however there can be no assurance
that similar improvements will be achieved in each geographic market in which
the Company operates. See "Cautionary Statement Concerning Forward-Looking
Statements" below. Freestanding locations require properties of approximately
1 1/4 acres to support parking for 40-60 cars. As a result, site selection is
also an important aspect of the Company's relocation program.
The Company believes that achieving a critical mass in terms of store count
and locating stores in desirable geographic markets is essential to competing
effectively in the context of the current managed care environment described
more fully above. As a result, management believes that the Company's store
development program is an important element of its ability to maintain its
leadership position in the chain drugstore industry.
INFORMATION SYSTEMS
CVS has made significant investments in information systems to enable the
Company to deliver an exceptional level of customer service, while lowering
costs and increasing operating efficiency. The Company's client-server based
systems permit rapid and flexible system development to meet changing business
needs, enabling the integration of CVS systems with those of other healthcare
providers, including many of the Company's managed care customers. With a
scaleable technical architecture, CVS can efficiently expand its network and add
stores.
In the Company's pharmacy business, the RX2000 computer system enables CVS
pharmacists to manage their prescription filling duties more efficiently, giving
them more time to spend with customers. The RX2000 system, which includes one of
the largest data warehouses in the country, facilitates the management of third
party healthcare plans and provides a warehouse of pharmacy data that can be
analyzed by both CVS and its managed care customers for a variety of healthcare-
and business-related applications. In addition, during 1997 the Company
implemented CVS Rapid Refill, an interactive voice response system that enables
customers to place refill orders by telephone 24 hours a day.
In the front store business, the Company has developed an advanced "Retail
Data Warehouse" that enables a quick analysis of point-of-sale ("POS") data on a
store-by-store basis to develop targeted marketing and merchandising strategies.
The Company has also implemented a "Field Management System" that uses POS data
to identify areas to improve operational execution on a store-by-store basis. In
addition, the Company is in the process of a major supply chain initiative to
reengineer its entire warehouse and merchandising network, which is intended to
enable the more efficient and effective control of merchandise flow to CVS
stores.
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SUPPLIERS
The Company centrally purchases most of its merchandise, including
prescription drugs, directly from manufacturers, allowing it to take advantage
of the promotional and volume discount programs that certain manufacturers offer
to retailers. During 1997, approximately 85% of the merchandise purchased
by the Company was received at one of the Company's distribution centers for
redistribution to its stores. The balance of store merchandise is shipped
directly to CVS stores from manufacturers and distributors at prices negotiated
at the corporate level.
The Company believes that the loss of any one supplier or group of suppliers
under common control would not have a material effect on its business.
CUSTOMER SERVICE
CVS strives to provide the highest levels of service to its customers and
partners. As a result, the Company devotes considerable time and attention to
people, systems and high service standards. The Company places an emphasis on
attracting and training friendly and helpful associates to work both in CVS
stores and throughout the CVS organization. Each CVS store receives a formal
customer service evaluation twice per year, based on a mystery shopper program,
customer letters and calls, and market research. CVS' priority on customer
service extends into the managed care portion of its business as well. In every
market, a Managed Care Service Team is responsible for ensuring that managed
care partners are receiving high levels of service. CVS pharmacists consistently
rank at the top of the industry on measurements of trust, relationship-building
and accessibility. This high level of service and expertise has played a key
role in enabling the growth of CVS' pharmacy operations.
REGULATION
The Company's pharmacies and pharmacists are required to be licensed by the
appropriate state boards of pharmacy. The Company's pharmacies and its
distribution centers are also registered with the Federal Drug Enforcement
Agency. By virtue of these licensing and registration requirements, the Company
is required to comply with various statutes, rules and regulations, a violation
of which could result in a suspension or revocation of such licenses or
registrations. Under the Omnibus Budget Reconciliation Act of 1990, the
Company's pharmacists are required to offer counseling, without charge, to
customers covered by Medicare about medication, dosage, delivery system,
potential side effects, and other information deemed significant by such
pharmacists. The Company's pharmacists in fact routinely offer such counseling
to consumers.
COMPETITION
The retail drugstore business is highly competitive. The Company believes
that it competes principally on the basis of: (i) store location and
convenience, (ii) customer service and satisfaction, (iii) product selection and
variety and (iv) price. The Company experiences active competition not only from
independent and other chain drugstores, but also from health maintenance
organizations, hospitals, mail order organizations, supermarkets, discount
drugstores and discount general merchandisers. The deep discount drug segment
has experienced significant growth over the past several years as drug chains,
food, discount and specialty retailers have entered the business. Major retail
companies now operate deep discount drugstores in the most competitive retailing
markets. "Combo" stores, which consist of grocery, drugstore and several other
operations under the same roof, have also experienced significant growth over
the past several years as consumers have become more attracted to one-stop
shopping. Retail mass merchandisers with prescription departments have also
grown in popularity. The Company is among the nation's largest chain drugstores,
in terms of both store count and annual sales volume.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report (as well as other public filings, press releases and discussions
with Company management) contains and incorporates by reference certain
forward-looking statements that are subject to risks and uncertainties.
Forward-looking statements include the information concerning future results of
operations, cost savings and synergies of the Company following the Revco merger
and the Arbor acquisition; the information concerning the Company's ability to
continue to achieve significant sales growth; the information concerning the
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ability of the Company to elevate the performance level of Revco stores
following the Revco merger; the information concerning the Company's belief
that it can continue to improve operating performance by relocating existing
in-line stores to freestanding locations; and the information concerning the
Company's ability to continue to reduce selling, general and administrative
expenses as a percentage of net sales; as well as those preceded by, followed
by or that otherwise include the words "believes", "expects", "anticipates",
"intends", "estimates" or similar expressions. For those statements, we claim
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995. You should understand
that the following important factors, in addition to those discussed
elsewhere in this report and in the documents which are incorporated by
reference, and in our other public filings, press releases and discussions
with Company management, could affect the future results of CVS and could
cause those results to differ materially from those expressed in the
forward-looking statements: materially adverse changes in economic conditions
in the markets served by the Company; future regulatory and legislative
actions affecting the Company and/or the chain-drug industry; competition
from other drugstore chains, from alternative distribution channels such as
supermarkets, membership clubs, other retailers and mail order companies and
from other third party plans; and the continued efforts of health maintenance
organizations, managed care organizations, pharmacy benefit management
companies and other third party payors to reduce prescription drug costs. The
forward looking statements referred to above are also subject to
uncertainties and assumptions relating to the operations and results of
operations of the Company following the Revco merger and the Arbor
acquisition, including: risks relating to the Company's ability to combine
the businesses of CVS, Revco and Arbor and maintain current operating
performance levels during the integration period(s) and the challenges
inherent in diverting the Company's management focus and resources from other
strategic opportunities and from operational matters for an extended period
of time during the integration process(es); the Company's ability to continue
to secure suitable new store locations on favorable lease terms as it seeks
to open new stores and relocate a portion of its existing store base to
freestanding locations; the Company's ability to continue to purchase
inventory on favorable terms; the Company's ability to attract, hire and
retain suitable pharmacists and management personnel; the ability of the
Company and its key vendors to successfully manage Year 2000 issues;
relationships with suppliers; and the impact of inflation.
ITEM 2. DESCRIPTION OF PROPERTY
Most CVS stores are occupied pursuant to long-term leases that vary as to
rental amounts and payments, expiration dates, renewal options and other rental
provisions. The Company does not deem any individual store lease to be
significant in relation to its overall business. For information as to the
amount of the Company's rental obligations for retail store leases, see Note 9
of Notes to Consolidated Financial Statements.
The Company owns its corporate headquarters, located in two buildings in
Woonsocket, Rhode Island which contain an aggregate of approximately 312,000
square feet. Additionally, the Company recently announced plans to begin
construction of a third headquarters building, expected to contain in excess of
200,000 square feet, on a site adjacent to its corporate headquarters. The
Company also owns distribution centers located in Rhode Island, New Jersey,
Virginia, Indiana, Alabama, Pennsylvania, Tennessee, North Carolina and South
Carolina, which contain an aggregate of approximately 4,944,000 square feet, and
leases additional space near its distribution centers which contain an aggregate
of approximately 1,189,000 square feet. In addition, the Company owns an office
building located in Woonsocket, Rhode Island which contains approximately 33,000
square feet. The Company also leases approximately 41,000 square feet in an
office building in Lincoln, Rhode Island and four "satellite" store support
buildings located in Rhode Island and Massachusetts which contain an aggregate
of approximately 146,000 square feet. The Company also owns Revco's former
corporate headquarters, located in Twinsburg, Ohio, which contains approximately
108,000 square feet, and leases an additional 151,000 square feet in Twinsburg
formerly used for Revco store support. All of the Company's Twinsburg facilities
are expected to be consolidated or closed in 1998.
In addition, in connection with certain dispositions of divisions
completed between 1991 and 1997, CVS continues to guaranty certain lease
obligations for store leases that had been entered into and guaranteed by the
Company prior to the time of disposition for approximately 2,000 former
stores. The Company is indemnified for these guarantee obligations by the
respective purchasers. These guarantees generally remain in effect for the
initial lease term and any extension thereof pursuant to a renewal option
provided for in the lease prior to the time of the disposition. See Note 8 of
Notes to Consolidated Financial Statements.
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ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are involved in the
assertion of claims and in litigation incidental to the normal course of
business. Management does not believe that any existing claims or litigation
will have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is included as an unnumbered item in Part I of this Report.
<TABLE>
<CAPTION>
DATE FIRST
DATE APPOINTED APPOINTED
TO PRESENT OFFICER OF
OFFICE OF THE THE
NAME/OFFICE AGE COMPANY COMPANY
- ----------------------------------------------------------------------------- --- -------------- ------------
<S> <C> <C> <C>
Charles C. Conaway
Executive Vice President and Chief Financial Officer,
CVS Corporation and CVS Pharmacy, Inc ..................................... 37 07/10/96 07/10/96
Stanley P. Goldstein
Chairman of the Board and Chief Executive Officer,
CVS Corporation............................................................ 63 01/01/87 04/13/71
Rosemary Mede
Vice President, CVS Corporation
Senior Vice President--Human Resources, CVS Pharmacy, Inc.................. 51 10/01/97 10/01/97
Larry J. Merlo
Vice President, CVS Corporation
Senior Vice President--Stores, CVS Pharmacy, Inc........................... 42 10/09/96 10/09/96
Daniel C. Nelson
Vice President, CVS Corporation
Executive Vice President--Marketing, CVS Pharmacy, Inc..................... 48 10/09/96 10/09/96
Thomas M. Ryan
Vice Chairman and Chief Operating Officer, CVS Corporation
President and Chief Executive Officer, CVS Pharmacy, Inc................... 45 10/09/96 01/01/94
Douglas A. Sgarro
Vice President, CVS Corporation
Senior Vice President--Administration and Chief Legal Officer,
CVS Pharmacy, Inc.......................................................... 38 09/10/97 09/10/97
Larry D. Solberg
Vice President, CVS Corporation
Senior Vice President--Finance and Controller, CVS Pharmacy, Inc........... 50 10/09/96 10/09/96
</TABLE>
In each case the term of office extends to the date of the board of
directors meeting following the next annual meeting of stockholders of the
Company. In addition to the office(s) which they hold in CVS
8
<PAGE>
Corporation and CVS Pharmacy, Inc. as shown above, each of the individuals
listed holds various offices in certain CVS subsidiaries. Previous positions and
responsibilities held by each of the above officers over the past five years are
indicated below:
CHARLES C. CONAWAY, Executive Vice President and Chief Financial Officer
of CVS Corporation since July 1996; Executive Vice President and Chief
Financial Officer of CVS Pharmacy, Inc. since February 1995; from September
1992 to February 1995, Senior Vice President--Pharmacy of CVS Pharmacy, Inc.;
director of Linens 'n Things, Inc.
STANLEY P. GOLDSTEIN, Chairman of the Board and Chief Executive Officer
of CVS Corporation since January 1987; director of Bell Atlantic Corporation,
Linens 'n Things, Inc. and Footstar, Inc. Additionally, the Company recently
announced that Mr. Goldstein will step down as Chief Executive Officer of CVS
Corporation effective May 13, 1998, at the time of the Company's Annual
Meeting of Stockholders. He will be succeeded as Chief Executive Officer by
Thomas M. Ryan (see below). Mr. Goldstein will remain Chairman of the Board.
ROSEMARY MEDE, Vice President of CVS Corporation and Senior Vice
President--Human Resources of CVS Pharmacy, Inc. since October 1997; from
December 1995 to September 1997, Vice President/General Manager of Business
Services, Becton Dickinson & Co.; from 1988 to November 1995, held various
management positions in human resources, Becton Dickinson & Co.
LARRY J. MERLO, Vice President of CVS Corporation since October 1996;
Senior Vice President--Stores of CVS Pharmacy, Inc. since January 1994; from
March 1993 to December 1993, Area Vice President of CVS Pharmacy, Inc.; from
March 1991 to March 1993, Area Vice President of Peoples Drug Stores, Inc.
DANIEL C. NELSON, Vice President of CVS Corporation since October 1996;
Executive Vice President--Marketing of CVS Pharmacy, Inc. since September
1993; from June 1990 to September 1993, Senior Vice President of Dominicks
Finer Foods, Inc.
THOMAS M. RYAN, Vice Chairman of the Board and Chief Operating Officer of
CVS Corporation since October 1996; President and Chief Executive Officer of
CVS Pharmacy, Inc. since January 1994; from January 1990 to January 1994,
Executive Vice President--Stores of CVS Pharmacy, Inc.; director of Fleet
Financial Group and Reebok International Ltd. Additionally, the Company
recently announced that Mr. Ryan has been elected President and Chief
Executive Officer of CVS Corporation effective May 13, 1998, at the time of
the Company's Annual Meeting of Stockholders.
DOUGLAS A. SGARRO, Vice President of CVS Corporation and Senior Vice
President--Administration and Chief Legal Officer of CVS Pharmacy, Inc. since
September 1997; from January 1993 to August 1997, partner in the New York
City office of the law firm of Brown & Wood LLP; from September 1984 to
December 1992, associate in the New York City office of Brown & Wood LLP.
LARRY D. SOLBERG, Vice President of CVS Corporation since October 1996;
Senior Vice President--Finance and Controller of CVS Pharmacy, Inc. since
March 1996; Vice President and Controller of CVS Pharmacy, Inc. from October
1994 to March 1996; from September 1993 to October 1994, Senior Vice
President of PIMMS Corp.; prior to September 1993, various offices with
National Car Rental Corp., most recently as Executive Vice President and
Chief Financial Officer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of holders of the Company's Common Stock, based upon the number
of record holders according to the records of the Company's transfer agent, was
approximately 10,200 as of December 31, 1997. The Company's Common Stock is
listed on the New York Stock Exchange ("NYSE"), under the ticker symbol "CVS."
The following table sets forth, for the calendar quarters indicated, the
reported high and low sale prices of the Company's Common Stock as reported on
the NYSE Composite Transaction Tape, and the cash dividends declared by the
Company per share of Common Stock.
9
<PAGE>
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW DECLARED
--------- --------- -----------
<S> <C> <C> <C>
1996
First Quarter.................................................................... $ 36 3/8 $ 27 1/4 $ 0.11
Second Quarter................................................................... $ 44 1/2 $ 35 1/4 $ 0.11
Third Quarter(1)................................................................. $ 46.00 $ 36 5/8 $ 0.11
Fourth Quarter................................................................... $ 44 3/4 $ 36 3/8 $ 0.11
1997
First Quarter.................................................................... $ 48.00 $ 39.00 $ 0.11
Second Quarter................................................................... $ 53 3/4 $ 44 1/4 $ 0.11
Third Quarter.................................................................... $ 60.00 $ 50 7/8 $ 0.11
Fourth Quarter................................................................... $ 70.00 $ 54 5/8 $ 0.11
</TABLE>
- ------------------------
On March 2, 1998, the closing sale price of the Common Stock as reported by the
New York Stock Exchange was $73 9/16.
(1) On October 12, 1996, the Company completed the distribution of 100% of the
common stock of Footstar, Inc. ("Footstar"), formerly a wholly owned
subsidiary of the Company, in the form of a stock dividend to the Company's
stockholders. The stock prices shown in the table are actual trading prices
and do not reflect any adjustments for the when issued price of Footstar
prior to October 16, 1996 (the date on which Footstar common stock commenced
trading regular way on the NYSE).
UNREGISTERED SALES OF SECURITIES
The Company did not sell any equity securities during the period covered by
this Annual Report on Form 10-K that were not registered under the Securities
Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Registrant's Annual
Report to Shareholders for the year ended December 31, 1997 on page 66 and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is included in the Registrant's Annual
Report to Shareholders for the year ended December 31, 1997 on pages 36 through
44 and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management does not believe that there is any material market risk exposure
with respect to derivative or other financial instruments which would require
disclosure under this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the Registrant's Annual
Report to Shareholders for the year ended December 31, 1997 on pages 46 through
65, and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the Registrant's two most recent fiscal years and subsequent interim
period, no event occurred which would require disclosure under this Item.
10
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, with the exception of the
information relating to executive officers of the Registrant (which is
presented under the caption "Executive Officers of the Registrant" in Part I,
Item 4, above), is included in the Registrant's Proxy Statement for the 1998
Annual Meeting of Stockholders under the captions "Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included in the Registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders under the caption
"Executive Compensation" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders under the captions "Share
Ownership Information of Directors and Named Executive Officers" and "Share
Ownership Information of Certain Principal Stockholders" and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Registrant's Proxy
Statement for the 1998 Annual Meeting of Stockholders under the caption "Certain
Relationships and Related Transactions" and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM 14(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS ANNUAL REPORT
ON FORM 10-K.
Item 14(a)(1) and (2) The consolidated financial statements of CVS
Corporation incorporated herein by reference to the Annual Report to
Shareholders for the year ended December 31, 1997 and the related
consolidated financial statement schedule are listed in the Index to
Consolidated Financial Statements and Schedule on page 16 hereof. Other
financial statement schedules have not been included because they are not
applicable or the information is included in the financial statements or
notes thereto.
ITEM 14(A)(3) EXHIBITS
The following is a list of exhibits filed as part of this Annual Report on
Form 10-K.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of CVS Corporation's Annual Report on Form 10-K for the fiscal year ended December 31,
1996).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of CVS Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996).
11
<PAGE>
4 Pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), no instrument which defines the rights of
holders of long-term debt of the Registrant ant its subsidiaries is filed herewith. The Registrant
hereby agrees to furnish a copy of any such instrument to the Securities and Exchange Commission
upon request.
4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration
Statement of the Registrant on Form 8-B dated November 4, 1996 and filed under the Securities
Exchange Act of 1934 on November 5, 1996).
10(i)(1) Stock Purchase Agreement dated as of October 14, 1995 between The TJX Companies, Inc. and Melville
Corporation, as amended November 17, 1995 (incorporated by reference to Exhibits 2.1 and 2.2 to
Melville's Current Report on Form 8-K dated December 4, 1995).
10(i)(2) Stock Purchase Agreement dated as of March 25, 1996 between Melville Corporation and Consolidated
Stores Corporation, as amended May 3, 1996 (incorporated by reference to Exhibits 2.1 and 2.2 to
Melville's Current Report on Form 8-K dated May 5, 1996).
10(i)(3) Distribution Agreement dated as of September 24, 1996 among Melville Corporation, Footstar, Inc. and
Footstar Center, Inc. (incorporated by reference to Exhibit 99.1 to Melville's Current Report on
Form 8-K dated October 28, 1996).
10(i)(4) Tax Disaffiliation Agreement dated as of September 24, 1996 among Melville Corporation, Footstar,
Inc. and certain subsidiaries named therein (incorporated by reference to Exhibit 99.2 to Melville's
Current Report on Form 8-K dated October 28, 1996).
10(i)(5) Agreement and Plan of Merger dated as of February 8, 1998, as amended as of March 2, 1998, among the
Registrant, Arbor Drugs, Inc. and Red Acquisition, Inc. (incorporated by reference to Exhibit 2 to
the Registrant's Registration Statement on Form S-4 filed March 2, 1998).
10(i)(6) Stockholder Agreement dated as of December 2, 1996 between the Registrant, Nashua Hollis CVS, Inc.
and Linens 'n Things, Inc.
10(i)(7) Tax Disaffiliation Agreement dated as of December 2, 1996 between the Registrant and Linens 'n
Things, Inc. and certain of their respective affiliates.
10(i)(8) Five Year Credit Agreement dated as of May 23, 1997 by and among the Registrant, the Lenders party
thereto, Fleet National Bank, as Documentation Agent, JP Morgan Securities, Inc., as Syndication
Agent and The Bank of New York, as Administrative Agent.
10(i)(9) Note Purchase Agreement dated as of June 7, 1989 by and among The Melville Corporation and Subsidiaries
Employee Stock Ownership Plan Trust, as Issuer, Melville Corporation, as Guarantor, and the Purchasers
named therein.
12
<PAGE>
10(iii)(A) 1973 Stock Option Plan (incorporated by reference to Exhibit (10)(iii)(A)(i) to Melville
(i) Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987).
(ii) 1987 Stock Option Plan (incorporated by reference to Exhibit (10)(iii)(A)(iii) to Melville
Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1987).
(iii) 1989 Directors Stock Option Plan (incorporated by reference to Exhibit B to Melville Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1988).
(iv) Melville Corporation Omnibus Stock Incentive Plan (incorporated by reference to Exhibit B to
Melville Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and
Exhibit A to Melville's definitive Proxy Statement dated March 7, 1995).
(v) Profit Incentive Plan of Melville Corporation (incorporated by reference to Exhibit A to Melville
Corporation's definitive Proxy Statement dated March 14, 1994).
(vi) Supplemental Retirement Plan for Select Senior Management of Melville Corporation I as amended
through July 1995 (incorporated by reference to Exhibit 10(iii)(A)(vii) to Melville's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
(vii) Supplemental Retirement Plan for Select Senior Management of Melville Corporation II as amended
through July 1995 (incorporated by reference to Exhibit 10(iii)(A)(viii) to Melville's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
(viii) Income Continuation Policy for Select Senior Executives of Melville Corporation as amended through
May 12, 1988 (incorporated by reference to Exhibit 10 (viii) to Melville's Annual Report on Form
10-K for the fiscal year ended December 31, 1994).
(ix) Melville Corporation 1996 Directors Stock Plan (incorporated by reference to Exhibit A to Melville's
definitive Proxy Statement dated March 7, 1996).
(x) Form of Employment Agreements between the Registrant and each of Messrs. Ryan, Conaway, Nelson and
Merlo (incorporated by reference to the Registrant's Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1996).
(xi) Deferred Stock Compensation Plan.
11 Statement re: Computation of Earnings per Common Share.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
13 1997 Annual Report to Shareholders (Sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Management's Responsibility for Financial
Reporting," "Independent Auditors' Report," "Consolidated Statements of Operations," "Consolidated
Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated Statements of Shareholders'
Equity," "Notes to Consolidated Financial Statements," and "Five-Year Financial Summary").
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule -- Fiscal Year 1996.
27.3 Restated Financial Data Schedule -- Fiscal Year 1995.
</TABLE>
ITEM 14(B) REPORTS ON FORM 8-K
During the quarter ended December 31, 1997, the Company filed did not file
any Reports on Form 8-K.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
CVS CORPORATION
DATE: March 30 , 1998 BY: /S/ Stanley P. Goldstein
--------------------------------------
Stanley P. Goldstein,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ ----------------------------- ----------------
Chairman of the Board,
/s/ STANLEY P. GOLDSTEIN Chief Executive Officer
- ------------------------------ and Director (Principal March 30, 1998
Stanley P. Goldstein Executive Officer)
Executive Vice President
/s/ CHARLES C. CONAWAY and Chief Financial
- ------------------------------ Officer (Principal March 30, 1998
Charles C. Conaway Financial Officer)
/s/ LARRY D. SOLBERG Vice President (Principal
- ------------------------------ Accounting Officer) March 30, 1998
Larry D. Solberg
/s/ ALLAN J. BLOOSTEIN Director
- ------------------------------ March 30, 1998
Allan J. Bloostein
/s/ W. DON CORNWELL Director
- ------------------------------ March 30, 1998
W. Don Cornwell
/s/ THOMAS P. GERRITY Director
- ------------------------------ March 30, 1998
Thomas P. Gerrity
/s/ WILLIAM H. JOYCE Director
- ------------------------------ March 30, 1998
William H. Joyce
/s/ TERRY R. LAUTENBACH Director
- ------------------------------ March 30, 1998
Terry R. Lautenbach
14
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ TERRENCE MURRAY Director
- ------------------------------ March 30, 1998
Terrence Murray
/s/ SHELI Z. ROSENBERG Director
- ------------------------------ March 30, 1998
Sheli Z. Rosenberg
/s/ THOMAS M. RYAN Vice Chairman, Chief
- ------------------------------ Operating Officer and March 30, 1998
Thomas M. Ryan Director
/s/ IVAN G. SEIDENBERG Director
- ------------------------------ March 30, 1998
Ivan G. Seidenberg
/s/ PATRICIA CARRY STEWART Director
- ------------------------------ March 30, 1998
Patricia Carry Stewart
/s/ THOMAS O. THORSEN Director
- ------------------------------ March 30, 1998
Thomas O. Thorsen
/s/ M. CABELL WOODWARD, JR. Director
- ------------------------------ March 30, 1998
M. Cabell Woodward, Jr.
15
<PAGE>
CVS CORPORATION AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
The consolidated financial statements of CVS Corporation together with the
report on such consolidated financial statements of KPMG Peat Marwick LLP dated
February 9, 1998 which appear on the pages listed below of the Annual Report to
Shareholders for the year ended December 31, 1997, are incorporated by reference
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
PAGE NUMBER IN
1997 ANNUAL
REPORT TO
SHAREHOLDERS
-----------------
<S> <C>
Management's Responsibility for Financial Reporting.............................................. 45
Independent Auditors' Report..................................................................... 45
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995....... 46
Consolidated Balance Sheets as of December 31, 1997 and 1996..................................... 47
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1997, 1996 and
1995........................................................................................... 48
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995....... 49
Notes to Consolidated Financial Statements....................................................... 50-65
Five-Year Financial Summary...................................................................... 66
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Included in Part IV of this report:
Independent Auditors' Report on Consolidated Financial Statements.......................................... F-1
Consolidated Financial Statement Schedule of CVS Corporation for the years ended December 31, 1997, 1996
and 1995:
Schedule II -- Valuation and Qualifying Accounts........................................................... S-1
</TABLE>
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
of CVS Corporation:
Under date of February 9, 1998, we reported on the consolidated balance
sheets of CVS Corporation and subsidiaries as of December 31, 1997 and 1996,
and related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997, as contained in the 1997 annual report to shareholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1997. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedule as listed
in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
- ----------------------------
KPMG PEAT MARWICK LLP
Providence, Rhode Island
February 9, 1998
F-1
<PAGE>
SCHEDULE II
CVS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED TO BALANCE AT
IN MILLIONS BEGINNING OF YEAR COSTS & EXPENSES (1) (3) DEDUCTIONS (2) END OF YEAR (3)
- -------------------------------------- ----------------- ------------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Accounts Receivable Allowance
for Doubtful Accounts:
Year Ended December 31, 1997.......... $ 36.0 $ 7.3 $ 5.3 $ 38.0
Year Ended December 31, 1996.......... 58.6 11.2 33.8 36.0
Year Ended December 31, 1995.......... 45.4 43.6 30.4 58.6
</TABLE>
- ------------------------
(1) 1995 includes a charge of $21.3 million that relates to certain receivables
of former operating businesses that were retained by the Company subsequent
to the sale of the related operating businesses.
(2) 1996 includes a deduction of $21.2 million that relates to the actual
write-off of the receivables discussed in Note (1) above.
(3) 1997 amounts are consistent with the historical results of the Company's
continuing operations.
S-1
<PAGE>
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT dated as of December 2, 1996 (the "Agreement")
between CVS Corporation, a Delaware corporation ("CVS"), Nashua Hollis CVS,
Inc., a New Hampshire corporation ("Nashua Hollis"), and Linens 'n Things, Inc.
("Linens"), a Delaware corporation.
W I T N E S S E T H:
WHEREAS, Linens is presently a wholly owned Subsidiary of CVS;
WHEREAS, after the sale on the date hereof of Common Stock, $0.01
par value per share (the "Common Stock"), of Linens to the public in an initial
public offering (the "Initial Public Offering") registered under the Securities
Act of 1933, as amended, CVS will own approximately 32.5% of the outstanding
Common Stock of Linens;
WHEREAS, CVS and Linens are concurrently herewith entering into the
Transitional Services Agreement and the Tax Disaffiliation Agreement;
WHEREAS, the parties hereto desire to set forth herein certain
matters relating to the relationship and the respective rights and obligations
of the parties following the Initial Public Offering;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. The following terms, as used herein, have
the following meanings:
"Action" means any claim, suit, action, arbitration, investigation
or other proceeding by or before any court, governmental or other regulatory or
administrative agency or commission or any other tribunal.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with,
such Person. For the purposes of
<PAGE>
this definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing; provided that, for purposes hereof, CVS and Linens
will be deemed not to be Affiliates of each other.
"Applicable CVS Number" has the meaning assigned to such term in the
Linens Charter.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning assigned thereto in the recitals
above.
"CVS Group" means CVS and its Subsidiaries (other than any
Subsidiary or member of, or other entity in, the Linens Group).
"CVS Liabilities" means all (i) Liabilities of the CVS Group under
this Agreement and (ii) except as otherwise specifically provided herein or in
the Tax Disaffiliation Agreement, other Liabilities that arise from or in
connection with a Third Party Claim, whether arising before, on or after the
Initial Public Offering Date, and that are of or relate to the CVS Group or
arise from or in connection with the conduct of the businesses of the CVS Group
(other than the Linens Business) or the ownership or use of assets in connection
therewith. Notwithstanding the foregoing, "CVS Liabilities" shall exclude (x)
any Liabilities for Taxes (since such Liabilities shall be governed by the Tax
Disaffiliation Agreement) and (y) any Liabilities specifically retained or
assumed by Linens pursuant to this Agreement.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, codes, plans, permits, licenses and governmental
restrictions, whether now or hereafter in effect, relating to the environment,
the effect of the environment on human health or to emissions, discharges,
releases, manufacturing, storage, processing, distribution, use, treatment,
disposal, transportation or handling of pollutants, contaminants, petroleum or
petroleum products, chemicals or industrial, toxic, radioactive or hazardous
substances or wastes or the clean-up or other remediation thereof.
"Finally Determined" means, with respect to any Action
2
<PAGE>
or other matter, that the outcome or resolution of such Action or matter has
been judicially determined by judgment or order not subject to further appeal or
discretionary review.
"Group" means, as the context requires, the Linens Group or the CVS
Group.
"Guaranteed Lease" has the meaning assigned to such term in Section
3.01.
"Indemnified Party" has the meaning set forth in Section 2.04.
"Indemnifying Party" has the meaning set forth in Section 2.04.
"Initial Public Offering Date" means the date on which the closing
of the Initial Public Offering is consummated.
"Lease Guarantee" has the meaning assigned to such term in Section
3.01.
"Liabilities" means any and all claims, debts, liabilities and
obligations, absolute or contingent, matured or not matured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising,
including all costs and expenses relating thereto, and including, without
limitation, those debts, liabilities and obligations arising under this
Agreement, any law, rule, regulation, any action, order, injunction or consent
decree of any governmental agency or entity, or any award of any arbitrator of
any kind, and those arising under any agreement, commitment or undertaking.
"Linens Business" means the businesses and operations (including,
without limitation, the home textiles and housewares-related purchasing,
distribution and sales operations and activities) associated with Linens or
otherwise of the Linens Group, in each case whether conducted prior to, on or
after the Initial Public Offering Date.
"Linens Charter" means the Amended and Restated Certificate of
Incorporation of Linens in effect as of the date hereof.
"Linens Group" means Linens and its Subsidiaries as of (and, except
where the context clearly indicates otherwise, after) the Initial Public
Offering Date (including all predecessors to such Persons).
"Linens Liabilities" means all (i) Liabilities of the
3
<PAGE>
Linens Group under this Agreement and (ii) except as otherwise specifically
provided herein or in the Tax Disaffiliation Agreement, other Liabilities that
arise from or in connection with a Third Party Claim, whether arising before, on
or after the Initial Public Offering Date, and that are of or relate to the
Linens Group or arise from or in connection with the conduct of the Linens
Business or the ownership or use of assets in connection therewith, including
without limitation any such Liabilities that arise under or relate to
Environmental Laws. Notwithstanding the foregoing, "Linens Liabilities" shall
exclude: (x) any Liabilities for Taxes (since such Liabilities shall be governed
by the Tax Disaffiliation Agreement), (y) any Liabilities arising from
shareholder derivative lawsuits against CVS, and (z) any Liabilities
specifically retained or assumed by CVS pursuant to this Agreement.
"Losses" means, with respect to any Person, any and all damage,
loss, liability and expense incurred or suffered by such Person (including,
without limitation, reasonable expenses of investigation and reasonable
attorneys' fees and expenses in connection with any and all Actions or
threatened Actions).
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Person" means an individual, corporation, limited liability
company, partnership, association, trust or other entity or organization,
including a governmental or political subdivision or an agency or
instrumentality thereof.
"Principal Stockholder" has the meaning assigned to such term in the
Linens Charter.
"Prospectus" means the prospectus relating to the Registration
Statement in the form first used to confirm the sale of shares of Common Stock
in the Initial Public Offering.
"Registration Statement" means the registration statement on Form
S-1 filed with the Commission relating to the offering and sale of the shares of
Common Stock of Linens in the Initial Public Offering.
"Stockholder Documents" means all of the agreements and other
documents entered into between Linens and CVS in connection with the Initial
Public Offering as contemplated hereby, including, without limitation, this
Agreement, the Transitional Services Agreement and the Tax Disaffiliation
Agreement.
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"Subsidiary" means, with respect to any Person, any other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Tax" means Tax as such term is defined in the Tax Disaffiliation
Agreement.
"Tax Disaffiliation Agreement" means the Tax Disaffiliation
Agreement dated as of the date hereof between CVS and Linens.
"Third-Party Claim" has the meaning set forth in Section 2.05.
ARTICLE II
INDEMNIFICATION
Section 2.01. Linens Indemnification of the CVS Group. (a) Subject
to Section 2.03, on and after the Initial Public Offering Date, Linens shall
indemnify, defend and hold harmless the CVS Group and the respective directors,
officers and Affiliates of each Person in the CVS Group (the "CVS Indemnitees")
from and against any and all Losses incurred or suffered by any of the CVS
Indemnitees arising out of, or due to the failure of any Person in the Linens
Group to pay, perform or otherwise discharge, any of the Linens Liabilities.
(b) Subject to Section 2.03, Linens shall indemnify, defend and hold
harmless each of the CVS Indemnitees and each Person, if any, who controls any
CVS Indemnitee within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act from and against any and all Losses caused by any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if Linens shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
Losses are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information furnished to Linens in writing by
CVS expressly for use therein.
(c) Subject to Section 2.03, on and after the Initial Public
Offering Date, Linens shall indemnify, defend and hold
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harmless each of the CVS Indemnitees and each Person, if any, who controls any
CVS Indemnitee from and against any and all Losses incurred or suffered by any
of the CVS Indemnitees (i) due to the failure of any Person in the Linens Group
to pay, perform or otherwise discharge its obligations under any of the
Guaranteed Leases or (ii) otherwise arising out of or with respect to any of the
Guaranteed Leases or Lease Guarantees, except in the case of this clause (ii),
to the extent Losses are attributable to any breach of any agreement or covenant
by the CVS Group under any Lease Guarantee.
Section 2.02. CVS Indemnification of Linens Group. (a) Subject to
Section 2.03, on and after the Initial Public Offering Date, CVS shall
indemnify, defend and hold harmless the Linens Group and the respective
directors, officers and Affiliates of each Person in the Linens Group (the
"Linens Indemnitees") from and against any and all Losses incurred or suffered
by any of the Linens Indemnitees and arising out of, or due to the failure of
any Person in the CVS Group to pay, perform or otherwise discharge, any of the
CVS Liabilities.
(b) Subject to Section 2.03, CVS shall indemnify, defend and hold
harmless each of the Linens Indemnities and each Person, if any, who controls
any Linens Indemnitee within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act from and against any and all Losses caused by any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if Linens shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such Losses are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished to Linens in writing by CVS expressly for use therein.
(c) The parties agree that, for purposes of Sections 2.01(b) and
2.02(b) hereof, the only information furnished to Linens in writing by CVS
expressly for use in the Registration Statement or any amendment thereof, any
preliminary prospectus or the Prospectus (as amended or supplemented if Linens
shall have furnished any amendments or supplements thereto) is the information
contained therein under the following captions: "Risk Factors--Control of the
Company by CVS" and "Relationship with CVS and Related Party Transactions".
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Section 2.03. Insurance; Third Party Obligations; Tax Benefits. Any
indemnification pursuant to Sections 2.01 or 2.02 shall be paid net of the
amount of any insurance or other amounts that would be payable by any third
party to the Indemnified Party (as defined below) in the absence of this
Agreement (irrespective of time of receipt of such insurance or other amounts)
and net of any tax benefit to the Indemnified Party attributable to the relevant
payment or Liability. It is expressly agreed that no insurer or any other third
party shall be (i) entitled to a benefit it would not be entitled to receive in
the absence of the foregoing indemnification provisions, (ii) relieved of the
responsibility to pay any claims to which it is obligated or (iii) entitled to
any subrogation rights with respect to any obligation hereunder.
Section 2.04. Notice and Payment of Claims. If any CVS Indemnitee or
Linens Indemnitee (the "Indemnified Party") determines that it is or may be
entitled to indemnification by any party (the "Indemnifying Party") under
Article II (other than in connection with any Action subject to Section 2.05),
the Indemnified Party shall deliver to the Indemnifying Party a written notice
specifying, to the extent reasonably practicable, the basis for its claim for
indemnification and the amount for which the Indemnified Party reasonably
believes it is entitled to be indemnified. Within 30 days after receipt of such
notice, the Indemnifying Party shall pay the Indemnified Party such amount in
cash or other immediately available funds unless the Indemnifying Party objects
to the claim for indemnification or the amount thereof. If the Indemnifying
Party does not give the Indemnified Party written notice objecting to such
indemnity claim and setting forth the grounds therefore within such 30-day
period, the Indemnifying Party shall be deemed to have acknowledged its
liability for such claim and the Indemnified Party may exercise any and all of
its rights under applicable law to collect such amount. In the event of such a
timely objection by the Indemnifying Party, the amount, if any, that is Finally
Determined to be required to be paid by the Indemnifying Party in respect of
such indemnity claim shall be paid by the Indemnifying Party to the Indemnified
Party in cash within 15 days after such indemnity claim has been so Finally
Determined.
Section 2.05. Notice and Defense of Third-Party Claims. Promptly
following the earlier of (i) receipt of notice of the commencement by a third
party of any Action against or otherwise involving any Indemnified Party or (ii)
receipt of information from a third party alleging the existence of a claim
against an Indemnified Party, in either case, with respect to which
indemnification may be sought pursuant to this Agreement (a "Third-Party
Claim"), the Indemnified Party shall give the Indemnifying Party written notice
thereof. The failure of the
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Indemnified Party to give notice as provided in this Section 2.05 shall not
relieve the Indemnifying Party of its obligations under this Agreement, except
to the extent that the Indemnifying Party is prejudiced by such failure to give
notice. Within 30 days after receipt of such notice, the Indemnifying Party may
(i) by giving written notice thereof to the Indemnified Party, acknowledge
liability for such indemnification claim and at its option elect to assume the
defense of such Third-Party Claim at its sole cost and expense or (ii) object to
the claim for indemnification set forth in the notice delivered by the
Indemnified Party pursuant to the first sentence of this Section 2.05; provided
that if the Indemnifying Party does not within such 30-day period give the
Indemnified Party written notice objecting to such indemnification claim and
setting forth the grounds therefor, the Indemnifying Party shall be deemed to
have acknowledged its liability for such indemnification claim. If the
Indemnifying Party has elected to assume the defense of a Third-Party Claim, (x)
the defense shall be conducted by counsel retained by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party, provided that the Indemnified
Party shall have the right to participate in such proceedings and to be
represented by counsel of its own choosing at the Indemnified Party's sole cost
and expense; and (y) the Indemnifying Party may settle or compromise the Third
Party Claim without the prior written consent of the Indemnified Party so long
as such settlement includes an unconditional release of the Indemnified Party
from all claims that are the subject of such Third Party Claim, provided that
the Indemnifying Party may not agree to any such settlement pursuant to which
any remedy or relief, other than monetary damages for which the Indemnifying
Party shall be responsible hereunder, shall be applied to or against the
Indemnified Party, without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. If the Indemnifying Party does
not assume the defense of a Third-Party Claim for which it has acknowledged
liability for indemnification hereunder, the Indemnified Party may require the
Indemnifying Party to reimburse it on a current basis for its reasonable
expenses of investigation, reasonable attorney's fees and reasonable
out-of-pocket expenses incurred in defending against such Third-Party Claim and
the Indemnifying Party shall be bound by the result obtained with respect
thereto by the Indemnified Party; provided that the Indemnifying Party shall not
be liable for any settlement effected without its consent, which consent shall
not be unreasonably withheld. The Indemnifying Party shall pay to the
Indemnified Party in cash the amount, if any, for which the Indemnified Party is
entitled to be indemnified hereunder within 15 days after such Third Party Claim
has been Finally Determined, in the case of an indemnity claim as to which the
Indemnifying Party has acknowledged liability or, in the case of any indemnity
claim as to which the Indemnifying
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Party has not acknowledged liability, within 15 days after such Indemnifying
Party's objection to liability hereunder has been Finally Determined.
Section 2.06. Certain Limitations on Claims. Notwithstanding
anything else contained in this Agreement, no claim may be made under Section
2.01(a), 2.01 (b), 2.02(a) or 2.02(b): (a) in respect of any single Loss claim
or item of $500 or less, provided that this clause (a) shall not preclude a
claim under any such Section in an amount in excess of $500 that is made up of
several related claims or items that individually are less than $500 in amount,
or (b) if the Loss giving rise to such claim is incurred after the fifth
anniversary of the date hereof.
Section 2.07. Contribution. If for any reason the indemnification
provided for in Section 2.01 or 2.02 is unavailable to any Indemnified Party, or
insufficient to hold it harmless, then, subject to the provisions of the
Underwriting Agreement relating to the Initial Public Offering, the Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses in such proportion as is appropriate to reflect all
relevant equitable considerations.
Section 2.08. Non-Exclusivity of Remedies. The remedies provided for
in this Article II are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any Indemnified Party at law or in equity.
ARTICLE III
CERTAIN AGREEMENTS RELATING TO LEASES; OTHER AGREEMENTS
Section 3.01. Continuity of Existing Lease Guarantees. With respect
to each real estate lease under which any Person in the Linens Group is a lessee
or sublessee and that is in effect prior to the date hereof (including, without
limitation, the leases set forth in Schedule 3.01 hereto (the "Scheduled
Leases")) and that remains in effect following the date hereof (i) without any
renewal option having been exercised or (ii) except in the case of the Scheduled
Leases (which will be guaranteed only through the initial term thereof), by
reason of the exercise of any renewal option provided for in the terms of such
lease as in effect as of the date hereof (collectively, the "Guaranteed
Leases"), any lease guarantee of such Guaranteed Lease provided by CVS or any of
its Affiliates and in effect as of the date hereof (a "Lease Guarantee") will
remain in effect after the date hereof for the duration of the term of such
lease
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and, except in the case of the Scheduled Leases (which will be guaranteed only
through the initial term thereof), any extension thereof pursuant to the
exercise of any such renewal option. CVS and its Affiliates shall be indemnified
against any Losses arising from such Guaranteed Leases or Lease Guarantees, as
provided in Section 2.01(c).
Section 3.02. No New CVS Lease Guarantees To be Furnished After The
Initial Public Offering. Except as expressly provided otherwise in Section 3.01,
to the extent that any guarantee is required to be provided after the date
hereof with respect to any real estate or other lease entered into by a Person
in the Linens Group, such guarantee shall not be furnished by any Person in the
CVS Group.
Section 3.03. Intercompany Accounts. All intercompany receivable,
payable and loan balances in existence as of the date hereof between the CVS
Group and Linens Group will be eliminated in the manner described in the
Registration Statement.
Section 3.04. Certain Rights Upon a Third Party Obtaining Above a
Specified Ownership Level of Linens Common Stock. (a) No Person or group (within
the meaning of Section 13(d) under the 1934 Act) of Persons shall become the
beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of a
majority of the Common Stock (such beneficial ownership level being "Majority
Beneficial Ownership") unless (i) CVS shall have received prior written notice
that such Person or group proposes to acquire Majority Beneficial Ownership and
(ii) prior to such acquisition such Person or group provides to CVS (unless
waived by CVS in writing) a guarantee, in form and substance acceptable to CVS,
of the obligations of Linens under Section 2.01(c) of this Agreement. In
addition, upon any such Person or group acquiring Majority Beneficial Ownership,
CVS may, at its election, forthwith terminate its provision of any or all of the
Services under the Transitional Services Agreement.
(b) As soon as Linens is aware or has reason to believe that any
Person or group proposes to acquire (or is considering acquiring) Majority
Beneficial Ownership, (i) Linens shall promptly provide written notice thereof
to CVS and (ii) Linens shall promptly inform such Person or group in writing of
the provisions of this Section 3.04. So long as (x) Linens has a class of its
capital stock registered under Section 12 of the 1934 Act and (y) the aggregate
future minimum lease payments under the Guaranteed Leases is greater than $50
million, Linens shall disclose the provisions of this Section 3.04 in each
Linens' Annual Report on Form 10-K filed under the 1934 Act.
Section 3.05. Intellectual Property Rights and
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Licenses. Neither Group shall have any right or license in or to any technology,
software, intellectual property (including any trademark, service mark, patent
or copyright), know-how or other proprietary right owned, licensed or held for
use by the other Group.
ARTICLE IV
REGISTRATION RIGHTS
Section 4.01. General. Linens grants to CVS and each other Person in
the CVS Group that agrees to be bound by the terms of Appendix A hereto the
registration rights set forth in Appendix A hereto. CVS, Nashua Hollis and
Linens hereby agree to the terms and provisions set forth in Appendix A hereto.
ARTICLE V
ACCESS TO INFORMATION
Section 5.01. Provision of Corporate Records. Immediately prior to
or as soon as practicable following the Initial Public Offering Date, each Group
shall provide to the other Group all documents, contracts, books, records and
data (including but not limited to minute books, stock registers, stock
certificates and documents of title) in its possession relating to such other
Group or such other Group's business and affairs; provided that if any such
documents, contracts, books, records or data relate to both Groups or the
business and operations of both Groups, each such Group shall provide to the
other Group true and complete copies of such documents, contracts, books,
records or data.
Section 5.02. Access to Information. From and after the Initial
Public Offering Date until the later of (a) two years after the date hereof and
(b) the date CVS ceases to be a Principal Stockholder, each Group shall afford
promptly to the other Group and its accountants, counsel and other designated
representatives reasonable access during normal business hours to all documents,
contracts, books, records, computer data and other data in such Group's
possession relating to such other Group or the business and affairs of such
other Group (other than data and information subject to an attorney/client or
other privilege), insofar as such access is reasonably required by such other
Group, including, without limitation, for audit, accounting, litigation and
disclosure and reporting purposes.
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Section 5.03. Litigation Cooperation. Each Group shall use
reasonable efforts to make available to the other Group and its accountants,
counsel, and other designated representatives, upon written request, its
directors, officers, employees and representatives as witnesses, and shall
otherwise cooperate with the other Group, to the extent reasonably required in
connection with any legal, administrative or other proceedings arising out of
either Group's business and operations prior to the Initial Public Offering Date
in which the requesting party may from time to time be involved.
Section 5.04. Reimbursement. Each Group providing information or
witnesses to the other Group, or otherwise incurring any expense in connection
with cooperating, under Sections 5.01, 5.02 or 5.03 shall be entitled to receive
from the recipient thereof, upon the presentation of invoices therefor, payment
for all out-of-pocket costs and expenses (excluding charges for employee time)
as may be reasonably incurred in providing such information, witnesses or
cooperation.
Section 5.05. Retention of Records. Except as otherwise required by
law or agreed to in writing, each party shall, and shall cause the members of
its respective Group to, retain all information relating to the other Group's
business and operations in accordance with the past practice of such party.
Notwithstanding the foregoing, any party may destroy or otherwise dispose of any
such information at any time, provided that, prior to such destruction or
disposal, (i) such party shall provide not less than 90 days' prior written
notice to the other party, specifying the information proposed to be destroyed
or disposed of, and (ii) if the recipient of such notice shall request in
writing prior to the scheduled date for such destruction or disposal that any of
the information proposed to be destroyed or disposed of be delivered to such
requesting party, the party proposing the destruction or disposal shall promptly
arrange for the delivery of such of the information as was requested at the
expense of the requesting party.
Section 5.06. Confidentiality. Each party shall hold and shall cause
its directors, officers, employees, agents, consultants and advisors
("Representatives") to hold in strict confidence all information (other than any
such information relating solely to the business or affairs of such party)
concerning the other party unless (i) such party is compelled to disclose such
information by judicial or administrative process or, in the opinion of its
counsel, by other requirements of law or (ii) such information can be shown to
have been (A) in the public domain through no fault of such party or (B)
lawfully acquired after the date hereof on a non-confidential basis from other
sources. Notwithstanding the foregoing, such party may
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disclose such information to its Representatives so long as such Persons are
informed by such party of the confidential nature of such information and are
directed by such party to treat such information confidentially. If such party
or any of its Representatives becomes legally compelled to disclose any
documents or information subject to this Section, such party will promptly
notify the other party so that the other party may seek a protective order or
other remedy or waive such party's compliance with this Section. If no such
protective order or other remedy is obtained or waiver granted, such party will
furnish only that portion of the information which it is advised by counsel is
legally required and will exercise its reasonable efforts to obtain reliable
assurance that confidential treatment will be accorded such information. Such
party agrees to be responsible for any breach of this Section by it and its
Representatives.
Section 5.07. Inapplicability of Article V to Tax Matters.
Notwithstanding anything to the contrary in Article V, Article V shall not apply
with respect to information, records and other matters relating to Taxes, all of
which shall be governed by the Tax Disaffiliation Agreement.
ARTICLE VI
EMPLOYEE MATTERS
Section 6.01. Employee Matters. With respect to employee matters and
employee benefit arrangements, the parties hereto agree as set forth in Schedule
6.01.
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ARTICLE VII
CVS' GOVERNANCE RIGHTS
Section 7.01. Appointment of Outside Directors. Within three months
after the date hereof, the Board of Directors of Linens (the "Linens Board")
shall fill two of the vacancies on the Linens Board with individuals who are not
officers or employees of any entity in the CVS Group or the Linens Group.
Section 7.02. CVS Designated Directors. CVS shall have the right to
designate the Applicable CVS Number of directors to the Linens Board and the
right to designate the class of the Linens Board to which each such CVS designee
shall be elected. In connection with each election of directors, Linens shall
nominate each of the Applicable CVS Number of individuals designated by CVS
(each, a "CVS Designee") as a director to the Board of Directors and shall
recommend to the stockholders the election of each CVS Designee as a director
(in the class so designated by CVS). Within three months after the date hereof,
the Linens Board shall fill one or more vacancies on the Linens Board with
individuals who are CVS Designees so that, after giving effect thereto, the
Applicable CVS Number of CVS Designees shall serve as directors on the Linens
Board.
Section 7.03. Removal of CVS Designees. In the event of a decrease
in the Applicable CVS Number at any time, (i) one or more (as appropriate) CVS
Designees (selected by CVS as provided in clause (ii)) shall automatically be
deemed removed from the Board effective at such time, and (ii) CVS shall have
the right to select the individual to be removed if any CVS Designee is to
remain as a director after giving effect to such decrease; provided that if
after giving effect to such decrease the Applicable CVS Number is zero, one CVS
Designee (selected by CVS) shall continue to serve as a director until the next
annual meeting of stockholders. Except as aforesaid or as provided in clause (g)
of Article FIFTH of the Linens Charter, no CVS Designee may be removed from the
Linens Board except with the written consent of CVS. CVS shall have the right to
remove any CVS Designee at any time (such removal to be effective upon delivery
of notice thereof to Linens), and the vacancy resulting from such removal shall
be filled as provided in Section 7.04.
Section 7.04. Filling of Vacancy of CVS Designee. In the event that
(i) there occurs at any time a vacancy in the Linens Board by reason of the
death, retirement, resignation, removal or other departure of any CVS Designee
and (ii) after giving effect to such vacancy the number of CVS Designees on the
Linens Board is less than the Applicable CVS Number at such time, the Linens
Board will act as promptly as practicable to fill such
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vacancy with a CVS Designee (and will so fill multiple vacancies, if necessary)
so that, after giving effect to the election of such CVS Designee as a director,
the Applicable CVS Number of CVS Designees shall serve as directors on the
Linens Board.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Notices. All notices and other communications to any
party hereunder shall be in writing (including telex, telecopy or similar
writing) and shall be deemed given when received addressed as follows:
If to CVS, to:
CVS Corporation
1 CVS Drive
Woonsocket, Rhode Island 02895
Telecopy: (401) 765-4128
Attention: Chief Financial Officer and
General Counsel
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
If to Linens, to:
Linens 'n Things, Inc.
6 Brighton Road
Clifton, New Jersey 07015
Telecopy: (201) 778-1300
Attention:
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Telecopy: (212) 450-4800
Attention: Dennis S. Hersch
Any party may, by written notice so delivered to the other parties, change the
address to which delivery of any notice shall
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thereafter be made.
Section 8.02. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived if, and only if, such amendment or waiver is
in writing and signed, in the case of an amendment, by CVS and Linens, or in the
case of a waiver, by the party against whom the waiver is to be effective.
(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 8.03. Expenses. Except as specifically provided otherwise in
this Agreement, the Transitional Services Agreement or the Tax Disaffiliation
Agreement (including, without limitation, in Article II, Sections 3.03, 5.04,
5.05 and 8.08(c) and Schedule 6.01 of this Agreement), all costs and expenses
incurred in connection with the preparation, execution and delivery of the
Stockholder Documents and the consummation of the Initial Public Offering
(including the fees and expenses of all counsel, accountants and financial and
other advisors of both Groups in connection therewith, and all expenses in
connection with preparation, filing and printing of the Registration Statement
relating to the Initial Public Offering) shall be paid by CVS; provided that
Linens shall be responsible for and pay the fees, expenses and other amounts
payable to the lenders under Linens's credit facilities and all other fees and
expenses incurred in connection therewith (including the fees and expenses of
Linens's counsel in connection with the preparation and negotiation of all
documentation relating to such credit facilities).
Section 8.04. Successor 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 8.05. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of New York (except for
Article VII, which shall be construed in accordance with and governed by the law
of the State of Delaware), without regard to the conflicts of laws rules of
either such State.
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Section 8.06. 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 a counterpart hereof signed by the other parties hereto.
Section 8.07. Entire Agreement. This Agreement and the other
Stockholder Documents constitute the entire understanding of 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 the subject matter hereof and thereof. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein or in the other Stockholder Documents has been made or relied
upon by any party hereto. Neither this Agreement nor any provision hereof is
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.
Section 8.08. Tax Disaffiliation Agreement; Set-Off. (a) Except as
otherwise provided herein and not inconsistent with the Tax Disaffiliation
Agreement, this Agreement shall not govern any Tax, and any and all claims,
losses, damages, demands, costs, expenses or liabilities relating to Taxes shall
be exclusively governed by the Tax Disaffiliation Agreement.
(b) If, at the time Linens is required to make any payment to CVS
under this Agreement, CVS owes Linens any amount under this Agreement or the Tax
Disaffiliation Agreement, then such amounts shall be offset and the excess shall
be paid by the party liable for such excess. Similarly, if at the time CVS is
required to make any payment to Linens under this Agreement, Linens owes CVS any
amount under this Agreement or the Tax Disaffiliation Agreement, then such
amounts shall be offset and the excess shall be paid by the party liable for
such excess.
(c) If, pursuant to a Final Determination, any amount paid by CVS,
Linens or their respective Post-Distribution Affiliates pursuant to this
Agreement results in any increased Tax liability or reduction of any Tax Asset
of any member of the Linens Group, Linens or its Post-Distribution Affiliates,
or the CVS Group, CVS or its Post-Distribution Affiliates, respectively, then
CVS or Linens, as the case may be, shall indemnify the other party and hold it
harmless from any interest or penalty attributable to such increased Tax
liability or the reduction of such Tax asset and shall pay to the other party,
in addition to amounts otherwise owed, 100 percent of the After-Tax Amount. All
capitalized terms used in this Section 8.08(c) and not otherwise
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defined in this Agreement are used as defined in the Tax Disaffiliation
Agreement.
Section 8.09. 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 hereby may be
brought in the United States District Court for the Southern District of New
York or the United States District Court for the District of Delaware or any
other New York State court sitting in New York County or any other court of the
State of Delaware, and each of the parties hereby consents to the jurisdiction
of such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such suit, action or proceeding in any such court or that
any such suit, action or proceeding which is brought in any such court has been
brought in an inconvenient form. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 8.01 shall
be deemed effective service of process on such party.
Section 8.10. Existing Arrangements. Except as otherwise
contemplated hereby, all prior agreements and arrangements, including those
relating to goods, rights or services provided or licensed, between the Linens
Group and the CVS Group shall be terminated effective as of the Initial Public
Offering Date, if not theretofore terminated. No such agreements or arrangements
shall be in effect after the Initial Public Offering Date unless embodied in the
Stockholder Documents.
Section 8.11. Further Assurances. In addition to the actions
specifically provided for elsewhere in the Stockholder Documents, each of the
parties hereto shall use its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things, reasonably necessary,
proper or advisable under applicable laws, regulations and agreements or
otherwise to consummate and make effective the transactions contemplated by the
Stockholder Documents.
Section 8.12. Effective Date. This Agreement shall become effective
upon the closing of the Initial Public Offering.
Section 8.13. Captions. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
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IN WITNESS WHEREOF the parties hereto have caused this Stockholder
Agreement to be duly executed by their respective authorized officers as of the
date first above written.
CVS CORPORATION
By
-----------------------------
Name:
Title:
LINENS 'N THINGS, INC.
By
-----------------------------
Name:
Title:
NASHUA HOLLIS CVS, INC.
By
-----------------------------
Name:
Title:
<PAGE>
SCHEDULE 6.01
EMPLOYEE MATTERS
Section 1. General. Except as otherwise set forth in this Schedule
6.01, (a) CVS shall retain (i) any and all liabilities relating to or arising
out of any employee benefit or compensation arrangement (a "Plan") in respect of
any employee or former employee of CVS and any Affiliate of CVS who is not a
Transferred Employee (as hereinafter defined), and (ii) any and all liabilities
relating to or arising out of any Plan in respect of all Transferred Employees
that were incurred or are otherwise related to any period prior to and including
the Initial Public Offering Date and (b) CVS shall have no liability relating to
or arising out of any Plan in respect of Transferred Employees to the extent
that any such liability is incurred or otherwise relates to any period after the
Initial Public Offering Date.
Section 2. Employees. With respect to Terrence Grossman or each
individual who, as of the Initial Public Offering Date, is employed (including
persons absent from active service by reason of Short Term Disability or Long
Term Disability, as hereinafter defined, or absence not relating to disability,
whether paid or unpaid) in the Linens Business ("Transferred Employees"), Linens
shall cause the employment of each Transferred Employee to be continued on the
Initial Public Offering Date, provided that nothing stated herein shall limit
the right of Linens or any Subsidiary to terminate the employment of any
Transferred Employee following the Initial Public Offering Date or to reduce or
otherwise modify the position, responsibilities, compensation or benefits of any
Transferred Employee at any time, and provided further that an individual who is
employed as of the Initial Public Offering Date by Linens or any of its
Subsidiaries, but on such date is absent from active service and (i) is
receiving Long Term Disability Benefits (as hereinafter defined) or (ii) is
absent by reason of Short Term Disability but subsequently begins to receive
Long Term Disability Benefits shall not be considered a Transferred Employee for
purposes of the CVS Long Term Disability Plan. The employee benefit plans and
arrangements maintained by Linens shall give full service credit for purposes of
eligibility and vesting (and in connection with any such severance or vacation
plan or policy, for purposes of determining the level of benefit) for any
service on or prior to the Initial Public Offering Date of a Transferred
Employee with CVS and its Subsidiaries. For purposes of this Agreement, (i)
"Short Term Disability" shall mean a condition with respect to which an employee
is receiving
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benefits, as of the Initial Public Offering Date, under either the CVS Short
Term Disability Plan or the CVS Salary Continuation Plan, and (ii) "Long Term
Disability Benefits" shall mean benefits under the CVS Long Term Disability
Plan.
Section 3. Qualified Plans. (a) CVS shall retain all liabilities and
obligations in respect to benefits accrued by Transferred Employees under CVS's
ESOP. CVS shall cause each Transferred Employee to become 100% vested in the
employee's account in CVS's ESOP as of the Initial Public Offering Date. As soon
as practicable after the Initial Public Offering Date, CVS shall take such
action as may be necessary, if any, to permit each Transferred Employee to
exercise his rights under CVS's ESOP to effect an immediate distribution of such
Transferred Employee's full account balances under CVS's ESOP or to effect a
tax-free rollover of the taxable portion of the account balances into an
eligible retirement plan (within the meaning of Section 401(a)(31) of the
Internal Revenue Code ("Code"), a "Direct Rollover") maintained by Linens (the
"Linens Plan") or to an individual retirement account. CVS and Linens shall work
together in order to facilitate any such distribution or rollover and to effect
a Direct Rollover for those participants who elect to roll over their account
balances directly into the Linens Plan; provided that nothing contained herein
shall obligate the Linens Plan to accept a Direct Rollover in a form other than
cash.
(b) On the Initial Public Offering Date, or as soon as practicable
thereafter, Linens shall establish or designate the Linens Plan in order to
accommodate the Direct Rollovers described above and shall take all action
necessary, if any, to qualify the Linens Plan under the applicable provisions of
the Code and shall make any and all filings and submissions to the appropriate
governmental authorities required to be made by it in connection with any Direct
Rollover.
(c) As soon as practicable after the Initial Public Offering Date,
Linens shall establish or designate an individual account plan (the "Successor
Individual Account Plan"), which may be the same plan as the Linens Plan, for
the benefit of Transferred Employees, shall take all necessary action, if any,
to qualify such plan under the applicable provisions of the Code and shall make
any and all filings and submissions to the appropriate governmental agencies
required to be made by it in connection with the transfer of assets described
below. CVS shall cause each Transferred Employee to be 100% vested in the
employee's account balance under CVS's 401(k) Profit Sharing Plan as of the
Initial Public Offering Date. No later than the date of the transfer described
herein, Linens shall make all applicable 401(k), profit sharing, matching
contributions and
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<PAGE>
qualified non-elective contributions payable under CVS's 401(k) Profit Sharing
Plan with respect to Transferred Employees for periods on or prior to the
Initial Public Offering Date and shall be entitled to retain any applicable
reserves or accruals relating thereto. As soon as practicable following the
Initial Public Offering Date, CVS shall cause the trustee of CVS's 401(k) Profit
Sharing Plan to transfer in the form of cash or, to the extent applicable, notes
representing outstanding loans made to Transferred Employees under CVS's 401(k)
Profit Sharing Plan (or such other form as may be agreed to by CVS and Linens)
the full account balances of Transferred Employees (and beneficiaries thereof)
under CVS's 401(k) Profit Sharing Plan (which account balances will have been
credited with appropriate earnings attributable to the period from the Initial
Public Offering Date to the date of transfer described herein), reduced by any
necessary benefit or withdrawal payments to or in respect of Transferred
Employees occurring during the period from the Initial Public Offering Date to
the date of transfer described herein, to the appropriate trustee as designed by
Linens under the trust agreement forming a part of the Successor Individual
Account Plan, it being understood that CVS is under no obligation to effect a
distribution, payment or loan under CVS's 401(k) Profit Sharing Plan in respect
of a Transferred Employee who either requests a loan or terminates employment
after the Initial Public Offering Date but prior to the date of transfer
described herein if the required distribution, payment or loan, as the case may
be, forms have not been received by CVS prior to the last day of the month
preceding the month in which the transfer described herein occurs. CVS and
Linens agree to take such actions and enter into such agreements, if any, that
may be necessary to effect the transfer described herein. In consideration for
the transfer of assets described herein, Linens shall, effective as of the date
of transfer described herein, assume all of the obligations of CVS in respect of
the account balances accumulated by Transferred Employees under CVS's 401(k)
Profit Sharing Plan (exclusive of any portion of such account balances which are
paid or otherwise withdrawn prior to the date of transfer described herein) with
respect to the account balances transferred to the Successor Individual Account
Plan. CVS hereby indemnifies Linens, the Company and the Subsidiaries against
and agrees to hold them harmless from any liabilities or claims (including
claims for benefits or for breach of fiduciary duties, but excluding claims for
benefits to the extent of the assets transferred hereunder) relating to CVS's
401(k) Profit Sharing Plan (or the qualified status of that Plan) which arose
prior to the transfer of assets described herein or which relate to the
operation or administration of that Plan prior to the transfer of assets. Linens
hereby indemnifies CVS against and agrees to hold it harmless from any
liabilities or claims relating to the qualified status of the Successor
Individual Account Plan or the
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<PAGE>
operation or administration of that Plan following the transfer of assets
described herein.
Section 4. Welfare Plans and Worker Compensation. (a) Linens and its
Affiliates shall each establish or designate welfare benefit plans, within the
meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended, and applicable workers compensation plans, for the benefit of their
respective Transferred Employees (the "Replacement Welfare Plans"). The
Replacement Welfare Plans shall be effective as of the Initial Public Offering
Date, provided, that at the request of Linens, CVS shall continue to provide, to
the extent applicable, services for (i) Transferred Employees (and eligible
spouses and dependents) and (ii) former employees of the Linens Business and
their qualified beneficiaries who as of the Initial Public Offering Date are
covered pursuant to Title X of the Consolidated Omnibus Budget Reconciliation
Act of 1985 and Section 4980B of the Code under its Plans which provide medical,
dental, life insurance, accidental death and dismemberment, pharmacy, eyecare
and disability benefits for such period of time from the Initial Public Offering
Date to not later than May 1, 1997 as Linens shall specify in such request (the
"Benefit Transition Period"). Linens shall pay the claim and claims processing
cost of such services during the Benefit Transition Period (including claims
runout in respect of claims incurred both before and after the Initial Public
Offering Date) and shall directly fund all medical and dental claims through a
bank account set up solely for such purposes. In addition, Linens shall be
entitled to retain any applicable reserves or accruals relating to such
benefits. Linens and its designated Affiliates shall retain or assume all of the
obligations for any retiree benefits under any welfare plan provided Transferred
Employees (and dependents) and retirees (and dependents) terminated while
employed by Linens and any Affiliate or while employed in the Linens Business
prior to the Initial Public Offering Date. Linens and its Affiliates shall
assume as of the end of the Benefit Transition Period all obligations to provide
coverage and benefits for Transferred Employees and former employees of the
Linens Business and their qualified beneficiaries under the Title X of the
Consolidated Omnibus Budget Reconciliation Act of 1985 and Section 4980B of the
Code.
(b) Linens shall be responsible for all workers compensation claims,
whether arising before or after the Initial Public Offering Date, with respect
to any employee or former employee of the Linens Business, including, but not
limited to, any Transferred Employee. In addition, Linens shall be entitled to
retain any applicable reserves or accruals relating thereto.
Section 5. Stock Options. Except as otherwise
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<PAGE>
provided in any agreement with a Transferred Employee, as of the Initial Public
Offering Date all outstanding options issued to Transferred Employees to
purchase CVS Common Stock that have heretofore been granted under any employee
stock option plan of CVS and are exercisable on the Initial Public Offering Date
shall be exercisable for a period of 90 days from the Initial Public Offering
Date.
Section 6. Bonus and Profit Incentive Plans. Except as otherwise
provided in any agreement with a Transferred Employee, CVS shall have no
liability for any bonus or profit incentive awards and Linens shall be
responsible for all such awards relating to the period beginning on the Initial
Public Offering Date.
Section 7. Severance. The continued employment by Linens and its
Affiliates of Transferred Employees after the Initial Public Offering Date shall
not be deemed a severance of employment of such Transferred Employees from CVS
for purposes of any policy, Plan, program or agreement of CVS or any of its
Subsidiaries that provides for the payment of severance, salary continuation or
similar benefits.
Section 8. Supplemental Retirement Benefits and Deferred
Compensation. (a) Linens and its Affiliates shall assume as of the Initial
Public Offering Date all of the obligations and liabilities of CVS and any of
its Affiliates for any Transferred Employee under the Deferred Compensation Plan
of CVS Corporation and Affiliated Companies and any reserve or accrual in
respect of such Transferred Employees shall be retained by Linens.
(b) CVS shall have no liability for any obligation relating to
Transferred Employees under the Supplemental Retirement Plans I and II for
Select Senior Management of CVS Corporation and any Linens reserve or accrual in
respect of such Transferred Employees shall be transferred to CVS.
Section 9. No Third Party Beneficiaries. Neither Transferred
Employees nor any current, former or retired employee of CVS or its affiliates
shall be entitled to enforce the provisions of this Schedule 6.01 against the
respective parties as third party beneficiaries thereof.
24
<PAGE>
TAX DISAFFILIATION AGREEMENT
between
CVS CORPORATION,
on behalf of itself and its
Post-Deconsolidation Affiliates
and
LINENS `N THINGS, INC.,
on behalf of itself and its
Post-Deconsolidation Affiliates
<PAGE>
1. Definitions
2.Federal and State Taxes--Administrative and Compliance Matters.
(a) Sole Tax Sharing Agreement.................................8
(b) Designation of Agent.......................................9
(c) Pre-Deconsolidation Period Returns........................10
3.Consolidated Federal, Consolidated State and Unitary State
Taxes -- Allocation of Taxes.
(a) General...................................................10
(b) Estimated Payments........................................11
(c) Payment of Taxes at Year-End..............................11
(d) Carrybacks and Certain Other Matters......................14
4. Other Taxes
5. Certain Covenants.
(a) Linens Covenants..........................................18
(b) CVS Covenants.............................................19
(c) Linens and CVS Covenant...................................20
6. Indemnities.
(a)(I) Linens Indemnity .........................................20
(a)(II) Linens Additional Indemnity ..............................21
(b) CVS Indemnity.............................................21
(c) Discharge of Indemnity....................................23
(d) Tax Benefits..............................................24
(e) Refunds...................................................25
(f) Clerical Errors...........................................25
(g) Method of Calculation.....................................25
7. Communication and Cooperation.
(a) Consult and Cooperate.....................................26
(b) Provide Information.......................................27
(c) Tax Attribute Matters.....................................28
i
<PAGE>
8. Audits and Contest.
9. Payments.
10. Notices.
11. Costs and Expenses.
12. Effectiveness; Termination and Survival.
13. Section Headings.
14. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. ........................................33
(b) Waiver....................................................34
15.Governing Law and Interpretation.
16. Dispute Resolution.
17. Counterparts.
18. Assignments; Third Party Beneficiaries.
Exhibit A
ii
<PAGE>
Exhibit B
TAX DISAFFILIATION AGREEMENT
This Agreement is entered into as of the seond day of December, 1996
between CVS Corporation ("CVS"), a Delaware corporation, on behalf of itself and
its Post-Deconsolidation Affiliates, and Linens 'n Things, Inc. ("Linens"), a
Delaware corporation, on behalf of itself and its Post-Deconsolidation
Affiliates.
W I T N E S S E T H:
WHEREAS CVS and Linens intend to offer shares of Linens Common Stock
to the public pursuant to which Linens will cease to be a member of the CVS
Consolidated Group, as defined below.
WHEREAS, CVS and Linens desire to set forth their agreement on the
rights and obligations of CVS, Linens and their respective Affiliates with
respect to the handling and allocation of federal, state, local and foreign
Taxes incurred in Taxable periods beginning prior to the Deconsolidation Date
and various other Tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties agree as follows:
1
<PAGE>
1. Definitions
(a) As used in this Agreement:
"Affiliate" of any person shall mean any individual, corporation,
partnership or other entity directly or indirectly owning more than 50 percent
of, owned more than 50 percent by, or under more than 50 percent common
ownership with, such person.
"After-Tax Amount" shall mean an additional amount necessary to
reflect the hypothetical Tax consequences of the receipt or accrual of any
payment, using the maximum statutory rate (or rates, in the case of an item that
affects more than one Tax) applicable to the recipient of such payment for the
relevant year, reflecting for example, the effect of the deductions available
for interest paid or accrued and for Taxes such as state and local income Taxes.
"CVS Consolidated Group" shall mean, with respect to any Taxable
period, (i) with respect to Consolidated Federal Taxes, the affiliated group of
corporations of which CVS or Melville Corporation ("Melville") (or a successor
of either) was or is the common parent (within the meaning of Section 1504 of
the Code), (ii) with respect to Consolidated State Taxes and Unitary State
Taxes, the consolidated, combined or unitary group of which CVS or Melville (or
a successor of either) or any of their Affiliates was or is a member, and (iii)
with respect to any Other Tax payable with respect to a group which includes or
included at least one member of the CVS Group and at least one member of the
Linens Group, such group.
2
<PAGE>
"CVS Group" shall mean, with respect to any Taxable period, CVS,
Melville and their Affiliates (including their predecessors and successors) at
any time prior to the Deconsolidation (including, without limitation, the
Non-Chain Corporations) other than those Affiliates comprising the Linens Group.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor thereto.
"Consolidated Federal Tax" shall mean the consolidated Federal Tax
liability of the CVS Consolidated Group for any period as to which a
consolidated Federal Tax Return was or is filed by CVS or Melville, or any
successor to either, for such group.
"Consolidated State Tax" shall mean with respect to each State, any
income or franchise Tax payable with respect to a group of at least two
corporations, other than a Unitary State Tax.
"Deconsolidation" shall mean any event pursuant to which Linens
ceases to be a subsidiary corporation includible in a consolidated tax return of
CVS for Federal Tax purposes, or in a consolidated, combined or unitary return
with a member of the CVS Group.
"Deconsolidation Date" shall mean the date on which the
Deconsolidation shall be effected.
"Federal Tax" shall mean any Tax imposed under Subtitle A of the
Code and any related penalty imposed under Subtitle F of the Code.
3
<PAGE>
"Final Determination" shall mean (i) with respect to Federal Taxes,
(A) a "determination" as defined in Section 1313(a) of the Code, or (B) the date
of acceptance by or on behalf of the Internal Revenue Service of Form 870-AD (or
any successor form thereto), as a final resolution of Tax liability for any
Taxable period, except that a Form 870-AD (or successor form thereto) that
reserves the right of the taxpayer to file a claim for refund and/or the right
of the Internal Revenue Service to assert a further deficiency shall not
constitute a Final Determination with respect to the item or items so reserved;
(ii) with respect to Taxes other than Federal Taxes, any final determination of
liability in respect of a Tax provided for under applicable law; (iii) any final
disposition by reason of the expiration of the applicable statute of
limitations; and (iv) the payment of Tax by CVS, Linens, or any Affiliate of CVS
or Linens, whichever is responsible for payment of such Tax under applicable
law, with respect to any item disallowed or adjusted by a Taxing Authority,
provided that the provisions of Section 8 hereof have been complied with, or, if
such section is inapplicable, that the party responsible under the terms of this
Agreement for such Tax is notified by the party paying such Tax that it has
determined that no action should be taken to recoup such disallowed item, and
the other party agrees with such determination.
"Linens Group" shall mean Linens and its Affiliates immediately
after the Deconsolidation Date, including any predecessors thereto, and any
corporation that would have been an Affiliate of Linens immediately after
4
<PAGE>
the Deconsolidation Date if it had not been previously sold, liquidated or
otherwise disposed of.
"Non-Chain Corporations" shall mean Computer Development, Inc.,
Melville Equipment Leasing Corporation, MC Retail, Inc., Melville Realty Company
and their direct and indirect subsidiaries.
"Other Taxes" is defined in Section 4.
"Post-Deconsolidation Affiliate" shall mean with regard to CVS, any
person that is or that will be an Affiliate of CVS or a successor to CVS after
the Deconsolidation and, with regard to Linens, any person that is or that will
be an Affiliate of Linens or a successor to Linens after the Deconsolidation.
"Post-Deconsolidation Period" shall mean any taxable period (or
portion thereof) beginning after the close of business on the Deconsolidation
Date.
"Pre-Deconsolidation Period" shall mean any Taxable period ending on
or before the close of business on the Deconsolidation Date; provided that if a
Taxable period ending after the Deconsolidation Date contains any days which
fall prior to or on the Deconsolidation Date, any portion of such Taxable period
up to or including the Deconsolidation Date shall also be included in the
Pre-Deconsolidation Period.
"Pre-Deconsolidation Tax Liability" shall mean (i) the Consolidated
Federal Tax, and (ii) the Consolidated State Tax liability of any group that
includes at least one member of the CVS Group and at least one member of the
Linens Group, (iii) the Unitary State Tax liability of any group which includes
at least one member of the CVS Group and at least one
5
<PAGE>
member of the Linens Group, and (iv) any Other Taxes, in each case for any
Pre-Deconsolidation Period.
"Prime" shall mean the rate announced from time to time as "prime"
by Morgan Guaranty Trust Company as its prime rate.
"Referee" is defined in Section 16.
"Return" shall mean any Tax return, statement, report or form
(including estimated Tax returns and reports, extension requests and forms, and
information returns and reports) required to be filed with any Taxing Authority.
"Tax" (and the correlative meaning, "Taxes," "Taxing" and "Taxable")
shall mean (A) any tax imposed under Subtitle A of the Code, any net income,
gross income, gross receipts, alternative or add-on minimum, sales, use,
value-added, goods and services, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, transfer, recording, severance, stamp,
occupation, premium, property, environmental, custom duty, or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest and any penalty, addition to tax or additional amount
imposed by a Taxing Authority; (B) any liability of a member of the CVS Group or
the Linens Group, as the case may be, for the payment of any amounts of the type
described in clause (A) for any Taxable period resulting from the application of
Treasury Regulation Section 1.1502-6 or any similar
6
<PAGE>
provision applicable under state, local or foreign law; and (C) any liability of
a member of the CVS Group or the Linens Group for the payment of any amounts
described in clause (A) as a result of any express or implied obligation to
indemnify any other party.
"Tax Asset" shall mean any net operating loss, net capital loss,
investment Tax credit, foreign Tax credit, target jobs Tax credit, low income
housing credit, research and experimentation credit, charitable deduction or any
other credit or Tax attribute, including additions to basis of property, which
could reduce any Tax, including, without limitation, deductions, credits, or
alternative minimum net operating loss carryforwards related to alternative
minimum Taxes.
"Tax Packages" shall mean one or more packages of information,
including but not limited to the Corptax file and the divisional reconciliation,
that are (i) reasonably necessary for the purpose of preparing Federal Tax,
Consolidated State Tax, Unitary State Tax Returns or Other Tax returns of the
CVS Consolidated Group with respect to a Pre-Deconsolidation Period and (ii)
completed in all material respects in accordance with the standards that CVS has
established for its subsidiaries with respect to the relevant
Pre-Deconsolidation Period.
"Tax Proceeding" shall mean any Tax audit, dispute or proceeding
(whether administrative or judicial).
7
<PAGE>
"Taxing Authority" shall mean any governmental authority (domestic
or foreign) responsible for the imposition of any Tax.
"Unitary State Tax" shall mean, with respect to each State, any
income or franchise Tax payable with respect to a group of at least two
corporations and based upon a group apportionment percentage.
(b) Any term used in this Agreement which is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or the applicable Treasury regulations thereunder and, in the
case of Consolidated State Taxes, Unitary State Taxes, and Other Taxes, in
comparable provisions of applicable law.
2. Federal and State Taxes--Administrative and Compliance
Matters.
(a) Sole Tax Sharing Agreement. The parties acknowledge that there
has not been a Final Determination of the Pre-Deconsolidation Tax Liability, and
that members of the Linens Group are includible in the CVS Consolidated Group
for the Pre-Deconsolidation Period. This Agreement shall constitute the sole Tax
sharing agreement between CVS and its Post-Deconsolidation Affiliates, on one
hand, and Linens and its Post-Deconsolidation Affiliates, on the other hand,
and, to the extent there is any inconsistency between this Agreement and any
existing Tax sharing agreements or arrangements, written or unwritten, between
CVS and its Post-
8
<PAGE>
Deconsolidation Affiliates, on one hand, and Linens and its Post-Deconsolidation
Affiliates, on the other hand, this Agreement shall govern.
(b) Designation of Agent. Linens and each member of the Linens
Group, with respect to Consolidated Federal Taxes, each hereby irrevocably
designate CVS or Melville (to the extent required by applicable law) or a
successor of either as its agent, coordinator, and administrator, and, with
respect to Consolidated State Taxes, Unitary State Taxes and any Other Taxes
payable with respect to a group which includes at least one member of the CVS
Group and at least one member of the Linens Group, each hereby irrevocably
authorize CVS to designate a member of the CVS Group, or a successor of such
member, as its agent, coordinator, and administrator, for the purpose of taking
any and all actions (including the execution of waivers of applicable statutes
of limitation) necessary or incidental to the filing of any Return, any amended
Return, or any claim for refund (even where an item or Tax Asset giving rise to
an amended Return or refund claim arises in a Post-Deconsolidation Period),
credit or offset of Tax or any other proceedings, and for the purpose of making
payments to, or collecting refunds from, any Taxing Authority, in each case
relating to any Pre-Deconsolidation Period. CVS or the member of the CVS Group,
as the case may be, as agent, covenants to Linens that it shall be responsible
to see that all such administrative matters relating thereto shall be handled
promptly and appropriately. CVS shall inform and consult with Linens
9
<PAGE>
prior to taking any action on behalf of, or which will have any material impact
on the Tax liability of the Linens Group.
(c) Pre-Deconsolidation Period Returns. CVS and its
Post-Deconsolidation Affiliates will prepare, with the assistance of Linens and
its Post-Deconsolidation Affiliates, and file the Consolidated Federal Tax
Returns and the Consolidated State and Unitary State Tax Returns for all
Pre-Deconsolidation Periods. With respect to the 1996 year, Linens and its
Post-Deconsolidation Affiliates shall prepare and deliver to CVS all Tax
Packages within 120 days after the Deconsolidation Date.(1)
3. Consolidated Federal, Consolidated State and Unitary State
Taxes -- Allocation of Taxes.
(a) General. For the 1995 and 1996 Taxable years of the CVS
Consolidated Group,(2) Linens shall pay, or cause to be paid, to CVS or
Melville, with respect to 1995) an amount equal to (i) the Linens Group's share
of the CVS Consolidated Group's Consolidated Federal Tax and Consolidated State
Tax liability, determined in accordance with Exhibit A to this Agreement, and
(ii) the Linens Group's share of the CVS Consolidated Group's Unitary State Tax
liability, determined in accordance with Exhibit B to this Agreement.
- ----------
(1) Provide for 1997 if offering occurs in 1997 or if CVS continues to hold at
least 50% of Linens at any time in 1997.
(2) Provide for 1997 if offering occurs in 1997 or if CVS continues to hold at
least 50% of Linens at any time in 1997.
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(b) Estimated Payments. Promptly after CVS, Melville or any of their
Affiliates makes an estimated Tax payment with respect to the 1996 Taxable year
(other than a payment which relates solely to minimum Taxes due), whether or not
such payment is made prior to the Deconsolidation, CVS shall (i) in good faith
determine the amount of the Linens Group's share of such estimated Tax payment
(X) in accordance with the principles of Exhibit A to this Agreement, in the
case of an estimated Tax payment in respect of the Consolidated Federal Tax or
any Consolidated State Tax liability of the CVS Consolidated Group, and (Y) in
accordance with the principles of Exhibit B to this Agreement using 1995
apportionment factors, adjusted for significant dispositions or transfers of
assets, in the case of an estimated Tax payment in respect of any Unitary State
Tax liability of the CVS Consolidated Group and (ii) deliver a written statement
to Linens reflecting the determination described above. Linens shall pay to CVS
or CVS shall pay to Linens, as appropriate, the amount so determined in
accordance with Section 9 hereof.
(c) Payment of Taxes at Year-End.
(i) Promptly after CVS, Melville or any of their Affiliates files an
application to extend the due date of a Return for the 1995 or 1996
Taxable year, whether or not such application is filed prior to the
Deconsolidation, CVS shall (a) in good faith determine the estimated
amount of the Linens Group's share of the CVS Consolidated Group's
Consolidated Federal Tax or Consolidated State Tax liability for such
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Return in accordance with the principles of Exhibit A to this Agreement
or, in the case of a Unitary State Tax Return, in accordance with the
principles of Exhibit B to this Agreement using 1994 and 1995
apportionment factors for 1995 and 1996, respectively, adjusted for
significant dispositions or transfers of assets, and (b) deliver a written
statement to Linens reflecting the determination described above. Linens
shall pay to CVS, or CVS shall pay to Linens, as appropriate, in
accordance with Section 9 hereof, an amount equal to the difference, if
any, between (x) the amounts so determined and (y) the aggregate amount of
estimated installments paid with respect to the Linens Group's share of
such Tax liability for such year made pursuant to Section 3(b), adjusted
to take into account amounts previously paid or received by Linens or any
Affiliate in connection with any previous extension payments made either
before or after the Deconsolidation.
(ii) Promptly after CVS or a member of the CVS Consolidated Group
files a Consolidated Federal Tax Return, Consolidated State Tax Return or
Unitary State Tax Return, as the case may be, for which payments are to be
made under this Agreement, whether or not such Return is filed prior to
the Deconsolidation, CVS shall deliver to Linens a written statement
setting forth the difference between (x) the Linens Group's share of the
CVS Consolidated Group's Consolidated Federal Tax, Consolidated State Tax
or Unitary State Tax liability for such
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Return, determined in accordance with the principles of Exhibit A or B to
this Agreement, as the case may be, and (y) the aggregate amount of
payments with respect to the Linens Group's share of such Tax liability
for such year made pursuant to Section 3(b) or Section 3(c)(i). Linens
shall pay to CVS, or CVS shall pay to Linens, as appropriate, in
accordance with Section 9 hereof, an amount equal to such difference, if
any.
(iii) If the determination of the Linens Group's share of the CVS
Consolidated Group's Consolidated Federal Tax, Consolidated State Tax or
Unitary State Tax reflects a Tax Asset that may under applicable law be
used to reduce a Federal Tax, Consolidated State Tax or Unitary State Tax
liability, as the case may be, of any member of the CVS Group for any Tax
period, CVS shall pay to Linens, in accordance with Section 9 hereof, the
actual Tax saving produced by such Tax Asset; provided, however, that such
payment shall be made within 30 days of the receipt by CVS or any CVS
Affiliate of any refund, credit or other offset attributable thereto from
the relevant Taxing Authority. The amount of any such tax saving for any
tax period shall be the amount of the reduction in Taxes payable to a
Taxing Authority (or the increase in any Tax refund) with respect to such
period as compared to the Taxes that would have been payable to a Taxing
Authority (or the Tax refund that would have been received) with respect
to such period in the
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absence of such Tax Asset; provided, however, that in the event that the
use in a Pre-Deconsolidation Period of a Tax Asset attributable to any
member of the Linens Group, gives rise to, or increases, any alternative
minimum Tax liability, CVS shall pay to Linens, or Linens shall pay to
CVS, as the case may be, an amount equal to the difference between (i) the
maximum hypothetical Tax savings that could result from the use of such
Tax Asset determined using the maximum applicable regular tax rate in
effect for such Taxable year (or, in the case of a credit, 100 percent)
and (ii) the Linens Group's share of the alternative minimum Tax liability
or increase in alternative minimum Tax liability, as the case may be,
determined in accordance with Exhibit A to this Agreement.
(d) Carrybacks and Certain Other Matters.
(i) Subject to the provisions of Exhibit A hereto, CVS agrees to pay
Linens the actual benefit received by the CVS Consolidated Group in any
Tax period from the use in any Pre-Deconsolidation Period of any Tax Asset
arising in a Post-Deconsolidation Period. Such benefit shall be considered
equal to the excess of the amount of Tax that would have been payable (or
of the Tax refund that would have been receivable) by the CVS Consolidated
Group in such Tax period in the absence of such carryback over the amount
of Tax actually payable (or of the Tax refund actually receivable) by the
CVS Consolidated Group in such period; provided, however, that in the
event that the use in a Pre-
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Deconsolidation Period of a Tax Asset, attributable to any member of the
Linens Group, gives rise to, or increases, any alternative minimum Tax
liability, CVS shall pay to Linens, or Linens shall pay to CVS, as the
case may be, an amount equal to the difference between (i) the maximum
hypothetical Tax savings that could result from the use of such Tax Asset
determined using the maximum applicable regular tax rate in effect for
such Taxable year and (ii) the Linens Group's share of the alternative
minimum Tax liability or increase in alternative minimum Tax liability, as
the case may be, determined in accordance with Exhibit A to this
Agreement. Payment of the amount of such benefit shall be made in
accordance with Section 9 hereof; provided, however, that any such payment
shall be made within 30 days of the receipt by any member of the CVS
Consolidated Group of any refund, credit or other offset attributable
thereto from the relevant Taxing Authority.
(ii) If, subsequent to the payment by CVS to Linens of any amount
referred to in Section 3(d)(i) above, there shall be (A) a Final
Determination which results in a disallowance or a reduction of the Tax
Asset so carried back or (B) a reduction in the amount of the benefit
realized by the CVS Consolidated Group from such carryback as a result of
a Final Determination or the use by the CVS Consolidated Group of a Tax
Asset of the CVS Group, Linens shall repay to CVS the amount which would
not have been payable to Linens pursuant to Section 3(d)(i)
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had the amount of the benefit been determined in light of such event. In
addition, Linens shall hold CVS and each of its Post-Deconsolidation
Affiliates harmless for any penalty or interest payable by any member of
the CVS Consolidated Group as a result of any such event referred to in
the preceding sentence. Any amounts payable under this Section 3(d)(ii)
shall be paid by Linens to CVS in accordance with Section 9 hereof. To the
extent Linens' repayment obligation arises due to the use by the CVS
Consolidated Group of a Tax asset of a member of the CVS Group, Linens
shall pay CVS interest on the amount repaid to CVS from the date such
amount was paid by CVS to Linens until such repayment at Prime.
(iii) The parties hereto acknowledge that, in connection with the
disposition or deconsolidation of certain members of the CVS Group, CVS or
Melville has entered into, and intends to enter into, agreements similar
to this Agreement (the "CVS Group Agreements") relating to Tax matters
involving such members. Notwithstanding anything to the contrary in this
Agreement, to the extent that (i) CVS would be required under Section 3 of
this Agreement to make a payment to Linens in respect of a Tax saving or
Tax benefit attributable to a Tax Asset of the Linens Group and (ii) CVS
would be required under a CVS Group Agreement or Agreements to make a
similar payment to a member or
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members of the CVS Group in respect of the same Tax saving or Tax benefit,
then the portion of such Tax saving or benefit attributable to a Tax Asset
of the Linens Group shall be calculated in accordance with Treasury
Regulation Section 1502-21A and any successor thereto.
4. Other Taxes
(a) Liability for all Taxes other than Consolidated Federal Taxes or
Consolidated State or Unitary Taxes ("Other Taxes") attributable to the Linens
Group shall be the sole responsibility of Linens and its Post-Deconsolidation
Affiliates. Liability for all Other Taxes attributable to the CVS Group shall be
the sole responsibility of CVS and its Post-Deconsolidation Affiliates. The
responsibility for preparing and filing all Returns, and for making all payments
to any Taxing Authority, relating solely to Other Taxes attributable to the
Linens Group shall be the sole responsibility of Linens and its
Post-Deconsolidation Affiliates. The responsibility for preparing and filing all
other Returns, and for making all payments to any Taxing Authority, relating to
Other Taxes for any Pre-Deconsolidation Period shall be the sole responsibility
of CVS and its Post-Deconsolidation Affiliates. Promptly after a payment of
Other Taxes by CVS, or any of its Post-Deconsolidation Affiliates on one hand,
or Linens or any of its Post-Deconsolidation Affiliates, on the other hand, the
paying party shall notify the non-paying party of the amount of such Other
Taxes, if any, which is attributable to the non-paying party, in accordance with
17
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Section 4(c). The non-paying party shall pay to the paying party, in accordance
with Section 9 hereof, such amount.
(b) Linens shall be entitled to all refunds and credits of Other
Taxes attributable to the Linens Group, and CVS shall be entitled to all refunds
and credits of Other Taxes attributable to the CVS Group.
(c) The determination of whether Other Taxes are attributable to the
CVS Group, on one hand, or the Linens Group, on the other hand, shall be made in
accordance with past practices.
5. Certain Covenants.
(a) Linens Covenants. Linens covenants to CVS that during the period
beginning on the Deconsolidation Date and ending upon the expiration of the
statute of limitations period applicable to the Taxable year in which the
Deconsolidation occurs (after giving effect to any extension, mitigation or
waiver thereof), Linens will not, nor will it permit any of its
Post-Deconsolidation Affiliates to make or change any accounting method, amend
any Tax Return or take any Tax position on any Tax Return, change the manner in
which it conducts its business, take any other action, omit to take any action
or enter into any transaction that results in any increased Tax liability with
respect to a Pre-Deconsolidation Period, or reduction of any Tax Asset which was
created in a Pre-Deconsolidation Period, of the CVS Group or any member thereof
without first obtaining the written consent of an authorized representative of
CVS; provided, however, that if a change in law (including the
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enactment of any statute or the issuance of any proposed, temporary or final
regulations, or administrative pronouncement or judicial decision) would have a
material adverse effect on the aggregate Tax liability of Linens and its
Post-Deconsolidation Affiliates, then, notwithstanding anything to the contrary
in this Section 5(a), Linens shall be entitled to take, or to permit its
Post-Deconsolidation Affiliates to take, such minimum action as is necessary to
eliminate or mitigate the effect of the change in law. Linens agrees to notify
CVS of any action taken under the proviso contained in the preceding sentence.
(b) CVS Covenants. CVS covenants to Linens that (i) it will not
change its year-end for any Tax year beginning prior to January 1, 1997 and (ii)
during the period beginning on the Deconsolidation Date and ending upon the
expiration of the statute of limitations period applicable to the Taxable year
in which the Deconsolidation occurs (after giving effect to any extension,
mitigation or waiver thereof), CVS will not, nor will it permit any of its
Post-Deconsolidation Affiliates to make or change any accounting method, amend
any Tax Return or take any Tax position on any Tax Return, change the manner in
which it conducts its business, take any other action, omit to take any action
or enter into any transaction that results in any increased Tax liability with
respect to a Pre-Deconsolidation Period, or reduction of any Tax Asset which was
created in a Pre-Deconsolidation Period, of the Linens Group or any member
thereof without first obtaining the written consent of an authorized
representative of Linens; provided, however, that if a change in law (including
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the enactment of any statute or the issuance of any proposed, temporary or final
regulations, or administrative pronouncement or judicial decision) would have a
material adverse effect on the aggregate Tax liability of CVS and its
Post-Deconsolidation Affiliates, then, notwithstanding anything to the contrary
in this clause (ii), CVS shall be entitled to take, or to permit its
Post-Deconsolidation Affiliates to take, such minimum action as is necessary to
eliminate or mitigate the effect of the change in law. CVS agrees to notify
Linens of any action taken under the proviso contained in the preceding
sentence.
(c) Linens and CVS Covenant. The parties hereto agree to act in good
faith in complying with the terms of this Agreement.
6. Indemnities.
(a)(I) Linens Indemnity. Linens and each corporation that is a
Post-Deconsolidation Affiliate of Linens will jointly and severally indemnify
CVS and its Post-Deconsolidation Affiliates against and hold them harmless from
(i) any Pre-Deconsolidation Tax Liability assessed pursuant to a
Final Determination, to the extent attributable to an adjustment of any
item of income, gain, gross receipts, loss, credit, deduction or other Tax
attribute of any member of the Linens Group; and
(ii) any liability or damage resulting from a breach by Linens or
any of its Post-Deconsolidation Affiliates of any covenant made by Linens
herein.
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(iii) any liability or damage under the securities laws or otherwise
resulting from information furnished by Linens in connection with the
Deconsolidation.
If a Post-Deconsolidation Affiliate of Linens ceases to be an Affiliate of
Linens as a result of a sale of its stock to a third party (whether or not
treated as a sale of stock for Tax purposes), such Post-Deconsolidation
Affiliate shall be released from its obligations under this Agreement upon such
sale and neither Linens nor any of its other Post-Deconsolidation Affiliates
shall have any obligation to indemnify CVS or any of its Post-Deconsolidation
Affiliates under Section 6(a)(I)(ii) for any liability or damage attributable to
actions taken after such sale by such Post-Deconsolidation Affiliates.
Notwithstanding anything in this Agreement to the contrary, the preceding
sentence shall have no effect on Linens' obligation to indemnify CVS and its
Post-Deconsolidation Affiliates pursuant to Section 6(a)(II) of this Agreement.
(a)(II) Linens Additional Indemnity. Linens and each of its
Post-Deconsolidation Affiliates agree to continue to be bound by the terms of
the Tax Disaffiliation Agreement between Melville and Footstar, Inc. dated as of
September 24, 1996 (the "Footstar Tax Disaffiliation Agreement") after the
Deconsolidation. Linens will indemnify CVS and its Post-Deconsolidation
Affiliates for any liability incurred by CVS or any of its Post-Deconsolidation
Affiliates pursuant to Section 6(b)(iii) of the Footstar Tax Disaffiliation
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Agreement resulting from any action taken after the Deconsolidation by Linens or
any of its Post-Deconsolidation Affiliates.
(b) CVS Indemnity. CVS and each corporation that is a
Post-Deconsolidation Affiliate of CVS will jointly and severally indemnify
Linens and its Post-Deconsolidation Affiliates against and hold them harmless
from
(i) any Pre-Deconsolidation Tax Liability, or Tax liability
resulting from the Deconsolidation, other than any such liabilities
described in Section 6(a);
(ii) any Tax liability allocable to a member of the CVS Group which
is a liability of the Linens Group under clause (B) of the definition of
Tax with respect to any pre-Deconsolidation Period or any Tax year of the
CVS Consolidated Group which includes (but does not end on) the
Deconsolidation Date; and
(iii) any liability or damage resulting from a breach by CVS or any
of its Post-Deconsolidation Affiliates of any covenant made by CVS herein.
(iv) any liability of damage under the securities laws or otherwise
resulting from information furnished by CVS in connection with the
Deconsolidation.
For the purpose of avoiding ambiguity, the parties agree that CVS and its
Post-Deconsolidation Affiliates shall be responsible under this Agreement for
any Tax for a Pre-Deconsolidation Period attributable to (x) the corporations
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(domestic or foreign) comprising the CVS, Bob's, Footstar (including Footaction,
Meldisco, Melville (Europe) Purchasing Ltd. and Thom McAn), Wilsons, Kay-Bee,
Marshalls, This End Up, Prints Plus, Chess King, Foxmoor and Accessory Lady
retail chains, (y) the Non-Chain Corporations and (z) to any business activity
conducted by CVS or any of its Affiliates (domestic or foreign) which is or was
directly related to the businesses conducted by the corporations specified in
clauses (x) and (y). If a Post-Deconsolidation Affiliate of CVS ceases to be an
Affiliate of CVS as a result of a sale of its stock to a third party (whether or
not treated as a sale of stock for Tax purposes), such Post-Deconsolidation
Affiliate shall be released from its obligations under this Agreement upon such
sale and neither CVS nor any of its other Post-Deconsolidation Affiliates shall
have any obligation to indemnify Linens or any of its Post-Deconsolidation
Affiliates under Section 6(b)(iii) for any liability or damage attributable to
actions taken after such sale by such Post-Deconsolidation Affiliates.
(c) Discharge of Indemnity. Linens, CVS and their respective
Post-Deconsolidation Affiliates shall discharge their obligations under Section
6(a) and 6(b) hereof, respectively, by paying the relevant amount within 30 days
of demand therefor. After a Final Determination of an obligation of Linens or
any of its Post-Deconsolidation Affiliates under Section 6(a), CVS shall send a
statement to Linens showing the amount due thereunder. After a Final
Determination of an obligation of CVS or any of its Post-Deconsolidation
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Affiliates under Section 6(b), Linens shall send a statement to CVS showing the
amount due thereunder. Calculation mechanics relating to items described in
Section 6(a)(i) are set forth in Section 3(c). Notwithstanding the foregoing, if
either Linens, CVS or any of their respective Post-Deconsolidation Affiliates
disputes in good faith the fact or the amount of its obligation under Section
6(a) or Section 6(b), then no payment of the amount in dispute shall be required
until any such good faith dispute is resolved in accordance with Section 16
hereof; provided, however, that any amount not paid within 30 days of demand
therefor shall bear interest as provided in Section 9.
(d) Tax Benefits. If an indemnification obligation of CVS, Linens or
any of their respective Post-Deconsolidation Affiliates under this Section 6
arises in respect of an adjustment that makes allowable to CVS or its
Affiliates, or Linens or its Affiliates, respectively, any deduction,
amortization, exclusion from income or other allowance (a "Tax Benefit") which
would not, but for such adjustment, be allowable, then any payment by CVS,
Linens or any of their respective Post-Deconsolidation Affiliates, as the case
may be, pursuant to this Section 6 shall be an amount equal to (X) the amount
otherwise due but for this subsection (d), minus (Y) the present value of the
product of the Tax Benefit multiplied (i) by the maximum federal or state, as
the case may be, corporate tax rate in effect at the time such Tax Benefit
becomes allowable to CVS or its Affiliates, or Linens or its Affiliates (as the
case may be) or (ii) in the case of a credit, by 100 percent. The present value
of such product shall be
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<PAGE>
determined by discounting such product from the time the Tax Benefit becomes
allowable at a rate equal to Prime.
(e) Refunds. Any refunds of Tax received by CVS or any of its
Post-Deconsolidation Affiliates relating to a Post-Deconsolidation Period, to
the extent attributable to any item of income, loss, credit, deduction or other
tax attribute of any member of the Linens Group shall be paid by CVS to Linens
within 30 days of receipt. Any amount not paid when due shall bear interest as
provided in Section 9.
(f) Clerical Errors If, as a result of a correction of a clerical
error made by booking any item at one member of the CVS Consolidated Group
instead of another, (i) the Pre-Deconsolidation Tax Liability allocable to the
Linens Group or the CVS Group, as the case may be, is increased, (ii) the
Pre-Deconsolidation Tax Liability allocable to the other group is decreased by
an offsetting amount, and (iii) no Tax payment is required to be made to a
Taxing Authority in respect of the correction of the clerical error, then the
group referred to in clause (ii) of this Section 6(f) shall be treated as having
made a Tax payment in an amount equal to the increased Pre-Deconsolidation Tax
Liability described in clause (i) of this Section 6(f) and shall be entitled to
indemnification therefor under this Section 6 without regard to Section 6(d).
(g) Method of Calculation. (i) Except as otherwise provided, the
amount of any liability of Linens and its Post-Deconsolidation Affiliates or of
CVS and its Post-Deconsolidation Affiliates under this Section 6 shall be
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calculated pursuant to the method described in Exhibit A hereto; provided,
however, that the calculation of any party's share of Unitary State Tax shall be
calculated pursuant to the method described in Exhibit B hereto.
(ii) For purposes of this Section 6, in the case of Taxes that are
imposed on a periodic basis and are payable for a Tax period that includes (but
does not end on) the Deconsolidation Date, the portion of such Tax related to
the portion of such Tax period ending on the Deconsolidation Date shall (x) in
the case of any Taxes other than Taxes based upon or related to income, sales,
gross receipts, wages, capital expenditures or expenses, be deemed to be the
amount of such Tax for the entire Tax period multiplied by a fraction the
numerator of which is the number of days in the Tax period ending on the
Deconsolidation Date and the denominator of which is the number of days in the
entire Tax period, and (y) in the case of any Tax based upon or related to
income, sales, gross receipts, wages, capital expenditures or expenses, be
deemed equal to the amount which would be payable if the relevant Tax period
ended on the Deconsolidation Date and applying the weighted average 1996 Tax
rate for the relevant Tax applicable to the corporation subject to such Tax.
7. Communication and Cooperation.
(a) Consult and Cooperate. Linens and CVS shall consult and
cooperate (and shall cause each of their Post-Deconsolidation Affiliates to
cooperate) fully at such time and to the extent reasonably requested by the
other
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party in connection with all matters subject to this Agreement. Such
cooperation shall include, without limitation,
(i) the retention and provision on reasonable request of any and all
information including all books, records, documentation or other
information pertaining to Tax matters relating to the CVS Group and the
Linens Group, any necessary explanations of information, and access to
personnel, until the expiration of the applicable statute of limitation
(giving effect to any extension, waiver, or mitigation thereof);
(ii) the execution of any document that may be necessary or helpful
in connection of any required Return or in connection with any audit,
proceeding, suit or action;
(iii) reporting to the other party, on a quarterly basis, on the
status of any Tax audit relating to a Pre-Deconsolidation Period; and
(iv) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing.
(b) Provide Information. CVS and Linens shall keep each other fully
informed with respect to any material development relating to the matters
subject to this Agreement. CVS shall provide to Linens copies of all Information
Document Requests relating to a Pre-Deconsolidation Period issued by the
Internal Revenue Services on Form 4564 or any successor thereto and any
analogous requests issued by any other Tax Authority (collectively,
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"Requests"), and (to the extent practicable in light of the relevant Taxing
Authority's requirements) shall use reasonable efforts to provide copies of the
response to each Request more than two business days prior to filing such
response; provided, however, that CVS's failure to deliver a copy of a response
to a Request before such two-day period shall not relieve Linens of its
obligations under this Agreement. CVS shall not be required to provide Linens
with copies of any Requests or the responses thereto unless specifically related
to the Linens group; provided, however, Linens shall not be entitled to review
or receive the portion of any response which does not specifically relate to the
Linens Group.
(c) Tax Attribute Matters. CVS and Linens shall advise and consult
with each other with respect to any proposed Tax adjustments relating to the CVS
Consolidated Group or, with respect to Other Taxes, any group which includes at
least one member of the CVS Group and at least one member of the Linens Group,
which are the subject of an audit or investigation, or are the subject of any
proceeding or litigation, and which may affect any Tax attribute of CVS, Linens,
the CVS Group, the Linens Group or any Post-Deconsolidation Affiliate of CVS or
Linens (including, but not limited to, basis in an asset or the amount of
earnings and profits).
8. Audits and Contest.
(a) Notwithstanding anything in this Agreement to the contrary, CVS
shall have full control over all matters relating to any Federal Tax return
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filed by the CVS Consolidated Group, any Consolidated State or Unitary State Tax
Return, any Other Tax Return (other than one relating solely to the Linens
Group), or any Tax Proceeding relating to any Tax matters of at least one member
of the CVS Group. Except as provided in Section 8(b), CVS shall have absolute
discretion with respect to any decisions to be made, or the nature of any action
to be taken, with respect to any matter described in the preceding sentence.
(b) No settlement of any Tax Proceeding relating to any matter which
would cause a payment obligation under Sections 6(a) or 6(b) shall be accepted
or entered into by or on behalf of the party entitled to receive a payment under
either Section 6(a) or Section 6(b), whichever is applicable, unless the party
ultimately responsible for such payment under either Section 6(a) or Section
6(b), whichever is applicable (the "Indemnitor"), consents thereto in writing
(which consent shall not be unreasonably withheld). If such consent is
unreasonably withheld, all expenses relating to the contest of such matter shall
be borne by the Indemnitor, and otherwise they shall be borne equally by the
Indemnitor and the indemnified party. If the Indemnitor does not respond to the
indemnified party's request for consent within 30 days, the Indemnitor will be
deemed to have consented to the settlement. Notwithstanding anything to the
contrary herein, the indemnified party shall have the right, without the consent
of the Indemnitor, to settle any Tax Proceeding relating to any matter which
would cause a payment obligation under Sections 6(a) or 6(b),
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provided, however, that in such event the Indemnitor shall have no liability
under Section 6(a) or (b), as the case may be, with respect to such matter.
(c) The indemnified party agrees to give prompt notice to the
Indemnitor of the assertion of any claim, or the commencement of any suit,
action or proceeding in respect of which indemnity may be sought hereunder. The
failure of the indemnified party to give notice as provided in this Section 8(c)
shall not relieve the Indemnitor of its obligations under this Agreement, except
to the extent that the Indemnitor is materially prejudiced by such failure to
give notice.
(d) With respect to Returns relating to Other Taxes solely
attributable to the Linens Group, Linens and its Post-Deconsolidation Affiliates
shall have full control over all matters relating to any Tax Proceeding in
connection therewith. Linens and its Post-Deconsolidation Affiliates shall have
absolute discretion with respect to any decisions to be made, or the nature of
any action to be taken, with respect to any matter described in the preceding
sentence.
9. Payments.
All payments to be made hereunder shall be made in immediately
available funds. Except as otherwise provided, all payments required to be made
pursuant to this Agreement will be due 30 days after the receipt of notice of
such payment or, where no notice is required, 30 days after the fixing of
liability or the resolution of a dispute. Payments shall be deemed made when
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received. Any payment that is not made when due shall bear interest at the rate
per annum determined, from time to time, under the provision of Section
6621(a)(2) of the Code for each day until paid; provided, however, that, if an
obligation or the amount thereof is being disputed in good faith, any payment
required after resolution of such dispute shall bear interest at Prime until and
including the thirtieth day after such resolution. If, pursuant to a Final
Determination, any amount paid by CVS, Linens or their respective
Post-Deconsolidation Affiliates pursuant to this Agreement results in any
increased Tax liability or reduction of any Tax Asset of any member of the
Linens Group, Linens or its Post-Deconsolidation Affiliates, or the CVS Group,
CVS or its Post-Deconsolidation Affiliates, respectively, then CVS or Linens, as
the case may be, shall indemnify the other party and hold it harmless from any
interest or penalty attributable to such increased Tax liability or the
reduction of such Tax asset and shall pay to the other party, in addition to
amounts otherwise owed, 50 percent of the After-Tax Amount; provided, however,
that with respect to any amount paid pursuant to Section 3(d)(ii) (other than as
a result of the use by the CVS Consolidated Group of a Tax Asset of the CVS
Group), Section 6(a)(ii) or (iii) or Section 6(b)(iii) or (iv), CVS or Linens,
as the case may be, shall pay to the other party 100 percent of the After-Tax
Amount.
10. Notices.
Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall be deemed to have been given upon the
31
<PAGE>
delivery or mailing thereof, as the case may be, if delivered personally or sent
by certified mail, return receipt requested, postage prepaid, to the parties at
the following addresses (or at such other address as a party may specify by
notice to the other):
If to CVS, to:
Charles Conaway
1 CVS Drive
Woonsocket, RI 02895
James E. Alward
Michael Golub
67 Millbrook Street
Worcester, MA 01606
If to Linens, to:
James Tomaszewski
William Giles
David Dick
6 Brighton Road
Clifton, NJ 07015
11. Costs and Expenses.
Except as expressly set forth in this Agreement, each party shall
bear its own costs and expenses incurred pursuant to this Agreement. For
purposes of this Agreement, "out-of-pocket" expenses shall include reasonable
attorney fees, accountant fees and other related professional fees and
disbursements.
32
<PAGE>
12. Effectiveness; Termination and Survival.
This Agreement shall become effective upon the consummation of the
Deconsolidation. Notwithstanding anything in this Agreement to the contrary,
this Agreement shall remain in effect and its provisions shall survive for the
full period of all applicable statutes of limitation (giving effect to any
extension, waiver or mitigation thereof).
13. Section Headings.
The headings contained in this Agreement are inserted for
convenience only and shall not constitute a part hereof or in any way affect the
meaning or interpretation of this Agreement.
14. Entire Agreement; Amendments and Waivers.
(a) Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein. No alteration, amendment, modification, or waiver of any of the terms of
this Agreement shall be valid unless made by an instrument signed by an
authorized officer of CVS and Linens, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) Waiver. No failure or delay by any party in exercising any
right, power or privilege hereunder shall operate as a waiver hereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege.
33
<PAGE>
15. Governing Law and Interpretation. This Agreement has been made
in and shall be construed and enforced in accordance with the laws of the
Commonwealth of Massachusetts.
16. Dispute Resolution. If the parties hereto are unable to resolve
any disagreement or dispute relating to this Agreement within 20 days, such
disagreement or dispute shall be resolved by a nationally recognized law firm or
accounting firm expert in Tax matters that is mutually acceptable to the parties
hereto (a "Referee"). A Referee so chosen shall resolve any such disagreement
pursuant to such procedures as it may deem advisable. Any such resolution shall
be binding on the parties hereto without further recourse. Except as otherwise
provided herein, the costs of any Referee shall be apportioned between CVS and
Linens as determined by such Referee in such manner as the Referee deems
reasonable, taking into account the circumstances of the dispute, the conduct of
the parties and the result of the dispute.
17. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
18. Assignments; Third Party Beneficiaries.
Except as provided below, this Agreement shall be binding upon and shall inure
only to the benefit of the parties hereto and their respective successors and
assigns. This Agreement is not intended to benefit any person other than the
34
<PAGE>
parties hereto and such successors and assigns, and no such other person shall
be a third party beneficiary hereof. If, during the period beginning on the
Deconsolidation Date and ending upon the expiration of all statute of
limitations periods applicable to Pre-Deconsolidation Periods, any corporation
becomes an Affiliate of either CVS or Linens, as the case may be, then upon the
request of either Linens or CVS, as the case may be, the other party shall
provide evidence of such Affiliate's agreement to be bound by the terms of this
Agreement. During the period beginning on the Deconsolidation Date and ending
upon the expiration of all statute of limitations periods applicable to
Pre-Deconsolidation Periods, no entity shall be entitled to acquire a
controlling interest in CVS or Linens unless such entity agrees to be bound by
the terms of this Agreement.
35
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first written above.
CVS on its own behalf and on
behalf of its Post-Deconsolidation
Affiliates
By:__________________________
Title:_______________________
Linens on its own behalf and
on behalf of its
Post-Deconsolidation
Affiliates
By:___________________________
Title:________________________
LNT, Inc., Divisional
Agent for the Linens Group
By: __________________________
Title: _______________________
36
<PAGE>
Exhibit A
1. The Linens Group's share of any Pre-Deconsolidation Consolidated Federal
or Consolidated State Tax liability shall be, with respect to such Federal
or Consolidated State Taxes, as applicable, calculated as if Linens were
the parent of a group filing its own consolidated return for all
Pre-Deconsolidation Periods; provided, however, that (i) income,
deductions, credits and losses shall be computed in a manner consistent
with past practices, (ii) the applicable Tax rate shall be the appropriate
maximum statutory rate in effect during the relevant year, (iii) in no
event shall the Linens Group's share of any Consolidated Federal or
Consolidated State Tax liability exceed the amount that would have
constituted the Linens Group's share of such liability if such share had
been calculated in accordance with the allocation principles set forth in
Treas. Reg.ss.1.1552-1(a)(2) and Treas. Reg.ss. 1.1502-33(d)(2)(ii) as in
effect prior to Treasury Decision 8597, except to the extent consistent
with past practice, and (iv) notwithstanding anything to the contrary in
this Agreement, any deduction attributable to the exercise of an option to
acquire CVS stock by a person who is an employee of a member of the Linens
Group at the time of such exercise shall be treated as a deduction
allocable to the member of the Linens Group employing such person.
2. For purposes of paragraph 1 above, "Tax liability" (1) shall exclude any
liability for the payment of alternative minimum tax; and (2) shall refer
to an actual out-of-pocket payment to any Taxing Authority, after taking
into account the utilization of net operating losses and any other Tax
Assets.
3. Any alternative minimum Tax liability (and any Tax Assets attributable to
such liability) and any environmental Tax imposed under Section 59A of the
Code shall be allocated among the members of the CVS Consolidated Group in
accordance with the formulas referenced in Proposed Treasury Regulation
Section 1.1502-5(b)(6).
4. For all Pre-Deconsolidation Periods, CVS or Melville (as appropriate)
shall have the right, in its sole discretion, to elect (in an original or
an amended return) to deduct currently any Taxes of foreign countries and
of possessions of the United States. In the event that CVS or Melville, as
the case may be, elects not to deduct currently such Taxes but instead to
elect to take a foreign tax credit under the provisions of Part III of
Subchapter N of the Code, any consolidated unused foreign tax credit of
37
<PAGE>
the CVS Consolidated Group shall be apportioned to the members of such
group pursuant to Treas. Reg.ss. 1.1502-79(d).
5. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as provided
above.
6. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the same
manner as the underlying Tax liability, as provided above.
38
<PAGE>
Exhibit B
1. The Linens Group's share of any Pre-Deconsolidation Unitary State Tax
Liability shall be, with respect to each State, the aggregate amount of
Unitary State Tax Liability of all members of the Linens Group that are
members of the relevant CVS Consolidated Group. A member's liability for
its share of Pre-Deconsolidation Unitary State Tax shall be determined in
accordance with paragraph 3 of this Exhibit B; provided, however, that (i)
income, deductions, credits and losses shall be computed in a manner
consistent with past practices, (ii) credits and any minimum taxes shall
be allocated to the member responsible for the generation of such credit
or taxes, and (iii) notwithstanding anything to the contrary in this
Agreement, any deduction attributable to the exercise of an option to
acquire CVS stock by a person who is an employee of a member of the Linens
Group at the time of such exercise shall be treated as a deduction
allocable to the member of the Linens Group employing such person.
2. The Linens Group's share of any Pre-Deconsolidation Unitary State Tax
Assets shall be, with respect to each State, the aggregate amount of
Unitary State Tax Assets of all members of the Linens Group. A member's
share of such Unitary State Tax Assets shall be determined in accordance
with paragraph 3 of this Exhibit B.
3. A member of the Linens Group's share of any Pre-Deconsolidation Unitary
State Tax Liability or Pre-Deconsolidation Unitary State Tax Asset shall
be the product of (i) such Unitary State Tax Liability or Unitary State
Tax Asset, as the case may be, and (ii) the percentage of the numerator
used in determining the apportionment percentage of the CVS Consolidated
Group for such Unitary State which is attributable to such member of the
Linens Group.
4. Any interest imposed in connection with any Tax liability shall be
allocated in the same manner as the underlying Tax liability, as provided
above.
5. Any penalty imposed in connection with any Tax liability shall be the
responsibility of the party whose action or inaction resulted in the
imposition of such penalty; provided, however, that if such a
determination cannot be made, the penalty shall be allocated in the same
manner as the underlying Tax liability, as provided above.
39
<PAGE>
================================================================================
FIVE YEAR CREDIT AGREEMENT
Dated as of May 23, 1997
by and among
CVS CORPORATION,
THE LENDERS PARTY THERETO,
FLEET NATIONAL BANK,
as Documentation Agent,
JP MORGAN SECURITIES INC.,
as Syndication Agent,
and
THE BANK OF NEW YORK,
as Administrative Agent,
--------------------------
$670,000,000
--------------------------
Effective Date: May 30, 1997
CLOSING DOCUMENTS
================================================================================
EMMET, MARVIN & MARTIN, LLP
120 BROADWAY
NEW YORK, N.Y. 10271
<PAGE>
INDEX
Five Year Credit Agreement
Dated as of May 23, 1997,
by and among
CVS Corporation,
the Lenders party thereto,
Fleet National Bank,
as Documentation Agent,
JP Morgan Securities Inc.,
as Syndication Agent,
and
The Bank of New York,
as Administrative Agent
Capitalized terms used herein which are not otherwise defined herein shall have
the respective meanings ascribed thereto in the Credit Agreement.
1. FIVE YEAR CREDIT AGREEMENT, dated as of May 23, 1997, by and among CVS
CORPORATION, (the "Borrower"), the Lenders party thereto, FLEET NATIONAL
BANK, as documentation agent (the "Documentation Agent"), JP MORGAN
SECURITIES INC. as syndication agent (the "Syndication Agent"), and THE
BANK OF NEW YORK, as administrative agent (the "Administrative Agent"),
and arranged by BNY CAPITAL MARKETS, INC.
2. Revolving Credit Notes, Competitive Bid Notes, and Swing Line Note.*
3. Certificate, dated May 30, 1997, of the Secretary of the Borrower,
certifying as to the incumbency of its officers who may sign the Loan
Documents and all other documents in connection therewith, including
therein a signature specimen of such officers, and attaching:
(a) a true and complete copy of its Certificate of Incorporation;
(b) a true and complete copy of its By-Laws;
(c) a certificate of good standing of the Secretary of State of the
State of Delaware; and
- ------------------
* previously delivered to each applicable Lender
<PAGE>
(d) a true and complete copy of the resolutions of its Board of
Directors.
4. Good Standing Telegram from the Secretary of State of the State of
Delaware.
5. Certificate, dated May 30, 1997, of the Treasurer of the Borrower,
certifying (i) as to the consummation of the CVS/Revco Merger, (ii) that
the representations and warranties contained in the Credit Agreement are
correct and that no Default or Event of Default exists, and (iii) that
immediately before and after giving effect to the consummation of the CVS/
Revco Merger, the Borrower is Solvent, and attaching:
(a) the CVS/Revco Merger Documents.*
6. Opinion of Davis Polk & Wardwell, special New York Counsel to the
Borrower, dated May 30, 1997.
7. Opinion of Zenon Lankowsky, General Counsel to the Borrower, dated May 30,
1997.
8. Opinion of Special Counsel, dated May 30, 1997.
- ----------
* lodged with the Administrative Agent
- 2 -
<PAGE>
FIVE YEAR CREDIT AGREEMENT
by and among
CVS CORPORATION,
THE LENDERS PARTY HERETO,
FLEET NATIONAL BANK,
as Documentation Agent,
JP MORGAN SECURITIES INC.,
as Syndication Agent,
and
THE BANK OF NEW YORK,
as Administrative Agent,
--------------------------
$670,000,000
--------------------------
Dated as of May 23, 1997
Arranged by: BNY CAPITAL MARKETS, INC.
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION .............................. 1
1.1 Definitions ....................................................... 1
1.2 Principles of Construction ....................................... 15
2. AMOUNT AND TERMS OF LOANS .............................................. 16
2.1 Revolving Credit Loans ........................................... 16
2.2 Swing Line Loans ................................................. 17
2.3 Notice of Borrowing-Revolving Credit Loans and Swing
Line Loans ....................................................... 19
2.4 Competitive Bid Loans and Procedure .............................. 20
2.5 Use of Proceeds .................................................. 22
2.6 Termination or Reduction of Commitments .......................... 22
2.7 Prepayments of Loans ............................................. 23
2.8 Letter of Credit Sub-facility .................................... 24
2.9 Letter of Credit Participation ................................... 25
2.10 Absolute Obligation with respect to Letter of
Credit Payments ................................................. 26
3. PROCEEDS, PAYMENTS, CONVERSIONS, INTEREST, YIELD
PROTECTION AND FEES .................................................... 26
3.1 Disbursement of the Proceeds of the Loans ........................ 26
3.2 Payments ......................................................... 27
3.3 Conversions; Other Matters ....................................... 28
3.4 Interest Rates and Payment Dates ................................. 29
3.5 Indemnification for Loss ......................................... 30
3.6 Reimbursement for Costs, Etc. .................................... 31
3.7 Illegality of Funding ............................................ 32
3.8 Option to Fund; Substituted Interest Rate ........................ 32
3.9 Certificates of Payment and Reimbursement ........................ 33
3.10 Taxes; Net Payments ............................................. 33
3.11 Facility Fee .................................................... 34
3.12 Letter of Credit Participation Fee .............................. 35
3.13 Replacement of Lender ........................................... 35
4. REPRESENTATIONS AND WARRANTIES ......................................... 36
4.1 Existence and Power .............................................. 36
4.2 Authority ........................................................ 36
4.3 Binding Agreement ................................................ 37
4.4 Litigation ....................................................... 37
4.5 No Conflicting Agreements ........................................ 37
4.6 Taxes ............................................................ 38
4.7 Compliance with Applicable Laws; Filings ......................... 38
4.8 Governmental Regulations ......................................... 38
4.9 Federal Reserve Regulations; Use of Proceeds ..................... 38
4.10 No Misrepresentation ............................................ 39
4.11 Plans ........................................................... 39
<PAGE>
4.12 Environmental Matters ........................................... 39
4.13 Financial Statements ............................................ 40
5. CONDITIONS OF LENDING - FIRST LOANS AND LETTERS OF CREDIT
ON THE FIRST BORROWING DATE ............................................ 41
5.1 Evidence of Corporate Action ..................................... 41
5.2 Notes ............................................................ 41
5.3 Opinion of Special Counsel ....................................... 41
5.4 Opinion of Counsel to the Borrower ............................... 41
5.5 CVS/Revco Merger ................................................. 41
5.6 Existing Credit Agreements ....................................... 42
6. CONDITIONS OF LENDING - ALL LOANS AND LETTERS OF CREDIT ................ 42
6.1 Compliance ....................................................... 42
6.2 Requests ......................................................... 42
6.3 Loan Closings .................................................... 43
7. AFFIRMATIVE COVENANTS .................................................. 43
7.1 Legal Existence .................................................. 43
7.2 Taxes ............................................................ 43
7.3 Insurance ........................................................ 43
7.4 Performance of Obligations ....................................... 43
7.5 Condition of Property ............................................ 44
7.6 Observance of Legal Requirements ................................. 44
7.7 Financial Statements and Other Information ....................... 44
7.8 Records .......................................................... 45
7.9 Authorizations ................................................... 46
7.10 Revco 10 1/8% Indenture Debt .................................... 46
8. NEGATIVE COVENANTS ..................................................... 46
8.1 Subsidiary Indebtedness .......................................... 46
8.2 Liens ............................................................ 46
8.3 Dispositions ..................................................... 47
8.4 Merger or Consolidation, Etc. .................................... 47
8.5 Acquisitions ..................................................... 47
8.6 Restricted Payments .............................................. 48
8.7 Limitation on Upstream Dividends by Subsidiaries ................. 48
8.8 Limitation on Negative Pledges ................................... 49
8.9 CVS/Revco Merger Documents ....................................... 49
8.10 Ratio of Consolidated Indebtedness to Total
Capitalization .................................................. 49
9. DEFAULT ................................................................ 49
9.1 Events of Default ................................................ 49
9.2 Remedies ......................................................... 51
10. AGENT ................................................................. 52
10.1 Appointment ..................................................... 52
10.2 Delegation of Duties ............................................ 53
10.3 Exculpatory Provisions .......................................... 53
- ii -
<PAGE>
10.4 Reliance by Administrative Agent ................................ 53
10.5 Notice of Default ............................................... 54
10.6 Non-Reliance .................................................... 54
10.7 Indemnification ................................................. 55
10.8 Administrative Agent in Its Individual Capacity ................. 55
10.9 Successor Administrative Agent .................................. 55
10.10 Documentation Agent and Syndication Agent ...................... 56
11. OTHER PROVISIONS ...................................................... 56
11.1 Amendments, Waivers, Etc. ....................................... 56
11.2 Notices ......................................................... 57
11.3 No Waiver; Cumulative Remedies .................................. 59
11.4 Survival of Representations and Warranties ...................... 59
11.5 Payment of Expenses and Taxes; Indemnified
Liabilities ..................................................... 59
11.6 Lending Offices ................................................. 60
11.7 Successors and Assigns .......................................... 60
11.8 Counterparts .................................................... 61
11.9 Set-off and Sharing of Payments ................................. 62
11.10 Indemnity ...................................................... 63
11.11 Governing Law .................................................. 63
11.12 Severability ................................................... 64
11.13 Integration .................................................... 64
11.14 Treatment of Certain Information ............................... 64
11.15 Acknowledgments ................................................ 65
11.16 Consent to Jurisdiction ........................................ 65
11.17 Service of Process ............................................. 65
11.18 No Limitation on Service or Suit ............................... 66
11.19 WAIVER OF TRIAL BY JURY ........................................ 66
11.20 Effective Date ................................................. 66
EXHIBITS
- --------
Exhibit A List of Commitments and Lending and Notice Offices
Exhibit B-1 Form of Revolving Credit Note
Exhibit B-2 Form of Competitive Bid Note
Exhibit B-3 Form of Swing Line Note
Exhibit C Form of Borrowing Request
Exhibit D Form of Opinion of counsel to the Borrower
Exhibit E Form of Opinion of Special Counsel
Exhibit F Form of Assignment and Acceptance Agreement
Exhibit G Form of Competitive Bid Request
Exhibit H Form of Invitation to Bid
Exhibit I Form of Competitive Bid
Exhibit J Form of Competitive Bid Accept/Reject Letter
Exhibit K Form of Letter of Credit Request
- iii -
<PAGE>
SCHEDULES
Schedule 4.4 List of Litigation
Schedule 8.2 List of Liens
- iv -
<PAGE>
FIVE YEAR CREDIT AGREEMENT, dated as of May 23, 1997, by and among CVS
CORPORATION, a Delaware corporation (the "Borrower"), the Lenders party hereto
from time to time (each a "Lender" and, collectively, the "Lenders"), FLEET
NATIONAL BANK, as documentation agent (in such capacity, the Documentation
Agent"), JP MORGAN SECURITIES INC. as syndication agent (in such capacity, the
"Syndication Agent"), and THE BANK OF NEW YORK ("BNY"), as administrative agent
for the Lenders (in such capacity, the "Administrative Agent"), and arranged by
BNY CAPITAL MARKETS, INC.
1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION
1.1 Definitions
When used in any Loan Document (as defined below), each of the following
terms shall have the meaning ascribed thereto unless the context otherwise
specifically requires:
"ABR Advances": the Revolving Credit Loans (or any portions thereof) at
such time as they (or such portions) are made or are being maintained at a rate
of interest based upon the Alternate Base Rate.
"Accumulated Funding Deficiency": as defined in Section 302 of ERISA.
"Acquisition": with respect to any Person, the purchase or other
acquisition by such Person, by any means whatsoever (including by devise,
bequest, gift, through a dividend or otherwise), of (a) stock of, or other
equity securities of, any other Person if, immediately thereafter, such other
Person would be either a consolidated subsidiary of such Person or otherwise
under the control of such Person, (b) any business, going concern or division or
segment thereof, or (c) the Property of any other Person other than in the
ordinary course of business, provided that (i) no acquisition of substantially
all of the assets, or any division or segment, of such other Person shall be
deemed to be in the ordinary course of business and (ii) no redemption,
retirement, purchase or acquisition by any Person of the stock or other equity
securities of such Person shall be deemed to constitute an Acquisition.
"Administrative Agent": as defined in the preamble.
"Affected Advance": as defined in Section 3.8(b).
"Affiliate": with respect to any Person at any time and from time to time,
any other Person (other than a wholly-owned subsidiary of such Person) which, at
such time (a) controls such Person, (b) is controlled by such Person or (c) is
under common control with such Person. The term "control", as used in this
definition with respect to any Person, means the power, whether direct or
indirect through one or more intermediaries, to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities or other interests, by contract or otherwise.
"Aggregate Commitment Amount": at any time, the sum of the Commitment
Amounts of the Lenders at such time under this Agreement.
<PAGE>
"Aggregate Credit Exposure": at any time, the sum at such time of (a) the
aggregate Committed Credit Exposure of the Lenders at such time under this
Agreement and (b) the aggregate outstanding principal balance of all Competitive
Bid Loans at such time under this Agreement.
"Agreement": this Credit Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"Alternate Base Rate": for any day, a rate per annum equal to the greater
of (a) the BNY Rate in effect on such day, or (b) 0.50% plus the Federal Funds
Effective Rate (rounded, if necessary, to the nearest 1/100th of 1% or, if there
is no nearest 1/100 of 1%, then to the next higher 1/100 of 1%) in effect on
such day.
"Applicable Margin": (i) with respect to the unpaid principal balance of
ABR Advances, the applicable percentage set forth below in the column entitled
"ABR Advances", (ii) with respect to the unpaid principal balance of Eurodollar
Advances, the applicable percentage set forth below in the column entitled
"Eurodollar Advances", (iii) with respect to the Facility Fee, the applicable
percentage set forth below in the column entitled "Facility Fee" and (iv) with
respect to the Letter of Credit Participation Fee, the applicable percentage set
forth below in the column entitled "Letters of Credit", in each case opposite
the applicable Pricing Level:
- --------------------------------------------------------------------------------
ABR Eurodollar Facility Letters of
Pricing Level Advances Advances Fee Credit
- ------------- -------- -------- --- ------
Pricing Level I 0% 0.130% 0.060% 0.130%
Pricing Level II 0% 0.135% 0.065% 0.135%
Pricing Level III 0% 0.145% 0.065% 0.145%
Pricing Level IV 0% 0.155% 0.070% 0.155%
Pricing Level V 0% 0.185% 0.090% 0.185%
Pricing Level VI 0% 0.225% 0.125% 0.225%
Pricing Level VII 0% 0.2625% 0.1875% 0.2625%
- --------------------------------------------------------------------------------
Decreases in the Applicable Margin resulting from a change in Pricing Level
shall become effective upon the delivery by the Borrower to the Administrative
Agent of a notice pursuant to Section 7.7(d). Increases in the Applicable Margin
resulting from a change in Pricing Level shall become effective on the effective
date of any downgrade or withdrawal in the rating by Moody's or S&P of the
senior unsecured long term debt rating of the Borrower.
"Assignment": as defined in Section 11.7(c).
"Assignment and Acceptance Agreement": an assignment and acceptance
agreement executed by an assignor and an assignee pursuant to which, subject to
the terms and conditions hereof and thereof, the assignor assigns to the
assignee all or any portion of such assignor's Loans, Notes and Commitment,
substantially in the form of Exhibit F.
"Assignment Fee": as defined in Section 11.7(c).
-2-
<PAGE>
"Benefited Lender": as defined in Section 11.9(b).
"BNY": as defined in the preamble.
"BNY Rate": a rate of interest per annum equal to the rate of interest
publicly announced in New York City by BNY from time to time as its prime
commercial lending rate, such rate to be adjusted automatically (without notice)
on the effective date of any change in such publicly announced rate.
"Borrower": as defined in the preamble.
"Borrower Audited Financial Statements": as defined in Section 4.13.
"Borrower Pro Forma Financial Statements": as defined in Section 4.13.
"Borrowing Date": (i) in respect of Revolving Credit Loans, any Business
Day on which the Lenders shall make Revolving Credit Loans pursuant to a
Borrowing Request or pursuant to a Mandatory Borrowing, (ii) in respect of
Competitive Bid Loans, any Business Day on which a Lender shall make a
Competitive Bid Loan pursuant to a Competitive Bid Request, (iii) in respect of
Swing Line Loans, any Business Day on which the Swing Line Lender shall make a
Swing Line Loan pursuant to a Borrowing Request and (iv) in respect of Letters
of Credit, any Business Day on which the Issuer shall issue a Letter of Credit
pursuant to a Letter of Credit Request.
"Borrowing Request": a request for Revolving Credit Loans or Swing
Line Loans in the form of Exhibit C.
"Change of Control": any of the following:
(i) any Person or group (as such term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, (a) shall have or acquire
beneficial ownership of securities having 30% or more of the ordinary voting
power of the Borrower or (b) shall possess, directly or indirectly, the power to
direct or cause the direction of the management and policies of the Borrower,
whether through the ownership of voting securities, by contract or otherwise; or
(ii) the Continuing Directors shall cease for any reason to
constitute a majority of the board of directors of the Borrower then in office.
"Commitment": in respect of any Lender, such Lender's undertaking to make
Revolving Credit Loans, subject to the terms and conditions hereof, in an
aggregate outstanding principal amount not to exceed the Commitment Amount of
such Lender.
"Commitment Amount": at any time and with respect to any Lender, the
amount set forth adjacent to such Lender's name under the heading "Commitment
Amount" in Exhibit A at such time or, in the event that such Lender is not
listed on Exhibit A, the "Commitment Amount" which such Lender shall have
assumed from another Lender in accordance with Section 11.7 on or prior to such
time, as the same may be adjusted from time to time pursuant to Sections 2.6 and
11.7(c).
-3-
<PAGE>
"Commitment Percentage": at any time and with respect to any Lender, a
fraction the numerator of which is such Lender's Commitment Amount at such time,
and the denominator of which is the Aggregate Commitment Amount at such time.
"Commitment Period": the period commencing on the Effective Date and
ending on the Commitment Termination Date, or on such earlier date as all of the
Commitments shall have been terminated in accordance with the terms hereof.
"Commitment Termination Date": the earlier of the fifth anniversary of the
Effective Date and the date on which the Loans shall become due and payable,
whether by acceleration, notice of intention to prepay or otherwise.
"Committed Credit Exposure": with respect to any Lender at any time, the
sum at such time of (a) the outstanding principal balance of such Lender's
Revolving Credit Loans, (b) the Swing Line Exposure of such Lender and (c) the
Letter of Credit Exposure of such Lender.
"Competitive Bid": an offer by a Lender, in the form of Exhibit I, to make
one or more Competitive Bid Loans.
"Competitive Bid Accept/Reject Letter": a notification made by the
Borrower pursuant to Section 2.4(d) in the form of Exhibit J.
"Competitive Bid Loan": as defined in Section 2.4(a).
"Competitive Bid Note": as defined in Section 2.4(h).
"Competitive Bid Rate": as to any Competitive Bid made by a Lender
pursuant to Section 2.4(b), the fixed rate of interest (which shall be expressed
in the form of a decimal to no more than four decimal places) offered by such
Lender and accepted by the Borrower.
"Competitive Bid Request": a request by the Borrower, in the form of
Exhibit G, for Competitive Bids.
"Competitive Interest Period": as to any Competitive Bid Loan, the period
commencing on the date of such Competitive Bid Loan and ending on the date
requested in the Competitive Bid Request with respect thereto, which shall not
be earlier than 3 days after the date of such Competitive Bid Loan or later than
180 days after the date of such Competitive Bid Loan; provided that if any
Competitive Interest Period would end on a day other than a Domestic Business
Day, such Interest Period shall be extended to the next succeeding Domestic
Business Day, unless such next succeeding Domestic Business Day would be a date
on or after the Commitment Termination Date, in which case such Competitive
Interest Period shall end on the next preceding Domestic Business Day. Interest
shall accrue from and including the first day of a Competitive Interest Period
to but excluding the last day of such Competitive Interest Period.
"Consolidated": the Borrower and the Subsidiaries on a consolidated
basis in accordance with GAAP.
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"Contingent Obligation": as to any Person (the "secondary obligor"), any
obligation of such secondary obligor (a) guaranteeing or in effect guaranteeing
any return on any investment made by another Person, or (b) guaranteeing or in
effect guaranteeing any Indebtedness, lease, dividend or other obligation
("primary obligation") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including any obligation of such
secondary obligor, whether or not contingent, (i) to purchase any such primary
obligation or any Property constituting direct or indirect security therefor,
(ii) to advance or supply funds (A) for the purchase or payment of any such
primary obligation or (B) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase Property, securities or services primarily
for the purpose of assuring the beneficiary of any such primary obligation of
the ability of the primary obligor to make payment of such primary obligation,
(iv) otherwise to assure or hold harmless the beneficiary of such primary
obligation against loss in respect thereof, and (v) in respect of the
Indebtedness of any partnership in which such secondary obligor is a general
partner, except to the extent that such Indebtedness of such partnership is
nonrecourse to such secondary obligor and its separate Property; provided that
the term "Contingent Obligation" shall not include the indorsement of
instruments for deposit or collection in the ordinary course of business.
"Continuing Director": any member of the board of directors of the
Borrower who (i) is a member of that board of directors on the Effective Date or
(ii) was nominated for election by the board of directors a majority of whom
were directors on the Effective Date or whose election or nomination for
election was previously approved by one or more of such directors.
"Control Person": as defined in Section 3.6.
"Convert", "Conversion" and "Converted": each, a reference to a conversion
pursuant to Section 3.3 of one Type of Revolving Credit Loan into another Type
of Revolving Credit Loan.
"Costs": as defined in Section 3.6.
"CVS Existing Credit Agreement": the Credit Agreement, dated as of July
10, 1996, by and among the Borrower, the lenders party thereto and The Bank of
New York, as agent.
"CVS/Revco Merger": the merger of Revco into and with CVS Sub, with Revco
as the surviving corporation.
"CVS/Revco Merger Date": the date on which the CVS/Revco Merger shall be
consummated.
"CVS/Revco Merger Documents": the S-4 Registration Statement of the
Borrower, as filed with the Securities and Exchange Commission on March 28,
1997, and the Agreement and Plan of Merger, dated as of February 6, 1997, among
the Borrower, Revco and CVS Sub, as amended by the First Amendment, dated as of
March 19, 1997, in each case as the same may be amended, supplemented or
otherwise modified from time to time in accordance with Section 8.9.
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"CVS Sub": North Acquisition Corp., a Delaware corporation and a
wholly-owned Subsidiary of the Borrower formed for the purpose of effecting the
CVS/Revco Merger. Prior to the CVS/Revco Merger, CVS Sub shall have no assets
(other than as required by law) and no liabilities (other than liabilities
arising under, or pursuant to, the CVS/Revco Merger Documents).
"Default": any of the events specified in Section 9.1, whether any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
"Disposition": with respect to any Person, any sale, assignment, transfer
or other disposition by such Person by any means, of:
(a) the Stock of, or other equity interests of, any other Person,
(b) any business, operating entity, division or segment thereof, or
(c) any other Property of such Person, other than (i) the sale of
inventory (other than in connection with bulk transfers), (ii) the
disposition of equipment and (iii) the sale of cash investments.
"Dividend Restrictions": as defined in Section 8.7.
"Documentation Agent": as defined in the preamble.
"Dollar or "$": lawful currency of the United States of America.
"Domestic Business Day": any day (other than a Saturday, Sunday or legal
holiday in the State of New York) on which banks are open for business in New
York City.
"Effective Date": as defined in Section 11.20.
"Employee Benefit Plan": an employee benefit plan, within the meaning of
Section 3(3) of ERISA, maintained, sponsored or contributed to by the Borrower,
any Subsidiary or any ERISA Affiliate.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"ERISA Affiliate": when used with respect to an Employee Benefit Plan,
ERISA, the PBGC or a provision of the Internal Revenue Code pertaining to
employee benefit plans, any Person that is a member of any group of
organizations within the meaning of Sections 414(b) or (c) of the Internal
Revenue Code or, solely with respect to the applicable provisions of the
Internal Revenue Code, Sections 414(m) or (o) of the Internal Revenue Code, of
which the Borrower or any Subsidiary is a member.
"ESOP Guaranty": the guaranty of the 8.52% ESOP Note maturing 2008 in the
aggregate unpaid principal amount, as of December 31, 1996, of $309,400,000.
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"Eurodollar Advance": a portion of the Revolving Credit Loans selected by
the Borrower to bear interest during a Eurodollar Interest Period selected by
the Borrower at a rate per annum based upon a Eurodollar Rate determined with
reference to such Interest Period, all pursuant to and in accordance with
Section 2.1 or 3.3.
"Eurodollar Business Day": any Domestic Business Day, other than a
Domestic Business Day on which banks are not open for dealings in Dollar
deposits in the interbank eurodollar market.
"Eurodollar Interest Period": the period commencing on any Eurodollar
Business Day selected by the Borrower in accordance with Section 2.1 or Section
3.3 and ending one, two, three or six months thereafter, as selected by the
Borrower in accordance with either such Sections, subject to the following:
(i) if any Interest Period would otherwise end on a day which is not
a Eurodollar Business Day, such Interest Period shall be extended to the
immediately succeeding Eurodollar Business Day unless the result of such
extension would be to carry the end of such Interest Period into another
calendar month, in which event such Interest Period shall end on the Eurodollar
Business Day immediately preceding such day; and
(ii) if any Interest Period shall begin on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period),
such Interest Period shall end on the last Eurodollar Business Day of such
latter calendar month.
"Eurodollar Rate": with respect to each Eurodollar Advance and as
determined by the Administrative Agent, the rate of interest per annum (rounded,
if necessary, to the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%,
then to the next higher 1/100 of 1%) equal to a fraction, the numerator of which
is the rate per annum quoted by BNY at approximately 11:00 A.M. (or as soon
thereafter as practicable) two Eurodollar Business Days prior to the first day
of such Interest Period to leading banks in the interbank eurodollar market as
the rate at which BNY is offering Dollar deposits in an amount approximately
equal to its Commitment Percentage of such Eurodollar Advance and having a
period to maturity approximately equal to the Interest Period applicable to such
Eurodollar Advance, and the denominator of which is an amount equal to 1.00
minus the aggregate of the then stated maximum rates during such Interest Period
of all reserve requirements (including marginal, emergency, supplemental and
special reserves), expressed as a decimal, established by the Board of Governors
of the Federal Reserve System and any other banking authority to which BNY and
other major United States money center banks are subject, in respect of
eurocurrency liabilities.
"Event of Default": any of the events specified in Section 9.1, provided
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition has been satisfied.
"Existing Credit Agreements": the CVS Existing Credit Agreement and the
Revco Existing Credit Agreement.
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"Expiration Date": the first date, occurring after the Commitments shall
have terminated or been terminated in accordance herewith, upon which there
shall be no Loans or Letters of Credit outstanding.
"Facility Fee": as defined in Section 3.11.
"Federal Funds Effective Rate": for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Domestic Business Day, for the next preceding Domestic
Business Day) by the Federal Reserve Bank of New York, or, if such rate is not
so published for any day which is a Domestic Business Day, the average (rounded,
if necessary, to the nearest 1/100 of 1% or, if there is no nearest 1/100 of 1%,
then to the next higher 1/100 of 1%) of the quotations for such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by the Administrative Agent.
"Fees": as defined in Section 3.2.
"Financial Statements": as defined in Section 4.13.
"GAAP": generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board and the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or such other principles as may be approved
by a significant segment of the accounting profession, which are applicable to
the circumstances as of the date of determination, consistently applied.
"Governmental Authority": any foreign, federal, state, municipal or other
government, or any department, commission, board, bureau, agency, public
authority or instrumentality thereof, or any court or arbitrator.
"Highest Lawful Rate": as to any Lender, the maximum rate of interest, if
any, which at any time or from time to time may be contracted for, taken,
charged or received on the Loans or the Notes or which may be owing to such
Lender pursuant to this Agreement under the laws applicable to such Lender and
this Agreement.
"Indebtedness": as to any Person at a particular time, all items of such
Person which constitute, without duplication, (a) indebtedness for borrowed
money or the deferred purchase price of Property (other than trade payables and
accrued expenses incurred in the ordinary course of business), (b) indebtedness
evidenced by notes, bonds, debentures or similar instruments, (c) indebtedness
with respect to any conditional sale or other title retention agreement, (d)
indebtedness arising under acceptance facilities and the amount available to be
drawn under all letters of credit (excluding for purposes of Sections 8.1 and
8.10 letters of credit obtained in the ordinary course of business by the
Borrower or any Subsidiary) issued for the account of such Person and, without
duplication, all drafts drawn thereunder to the extent such Person shall not
have reimbursed the issuer in respect of the issuer's payment of such drafts,
(e) that portion of any obligation of such Person, as lessee, which in
accordance with GAAP is required to be capitalized on a balance sheet of such
Person, (f) all indebtedness described in (a) - (e) above secured by
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any Lien on any Property owned by such Person even though such Person shall not
have assumed or otherwise become liable for the payment thereof (other than
carriers', warehousemen's, mechanics', repairmen's or other like non-consensual
Liens arising in the ordinary course of business), and (g) Contingent
Obligations in respect of any indebtedness described in items (a) - (f) above;
provided that, for purposes of this definition, Indebtedness shall not include
Intercompany Debt and obligations in respect of interest rate caps, collars,
exchanges, swaps or other, similar agreements.
"Indemnified Liabilities": as defined in Section 11.5.
"Indemnified Person": as defined in Section 11.10.
"Intercompany Debt": (i) Indebtedness of the Borrower to one or more of
the Subsidiaries of the Borrower and (ii) demand Indebtedness of one or more of
the Subsidiaries of the Borrower to the Borrower or any one or more of the other
Subsidiaries of the Borrower.
"Intercompany Disposition": a Disposition by the Borrower or any of the
Subsidiaries of the Borrower to the Borrower or to any of the other Subsidiaries
of the Borrower.
"Interest Payment Date": (i) as to any ABR Advance, the last day of each
March, June, September and December, commencing on the first of such days to
occur after such ABR Advance is made or any Eurodollar Advance is converted to
an ABR Advance, (ii) as to any Swing Line Loan, the day on which the outstanding
principal balance of such Swing Line Loan shall become due and payable in
accordance with Section 2.2(a), (iii) as to any Eurodollar Advance in respect of
which the Borrower has selected a Eurodollar Interest Period of one, two or
three months, the last day of such Eurodollar Interest Period, (iv) as to any
Competitive Bid Loan in respect of which the Borrower has selected a Competitive
Interest Period of 90 days or less the last day of such Competitive Interest
Period and (v) as to any Eurodollar Advance or Competitive Bid Loan in respect
of which the Borrower has selected an Interest Period greater than three months
or 90 days, as the case may be, the last day of the third month or the 90th day,
as the case may be, of such Interest Period and the last day of such Interest
Period.
"Interest Period": a Eurodollar Interest Period, a Swing Line Interest
Period or a Competitive Interest Period, as the case may be.
"Internal Revenue Code": the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto, and the rules and regulations
issued thereunder, as from time to time in effect.
"Invitation to Bid": an invitation by the Administrative Agent to the
Lenders to make Competitive Bids in the form of Exhibit H.
"Issuer": BNY.
"Lender": as defined in the preamble; such term to also include the Swing
Line Lender and the Issuer where the context hereof requires or permits such
inclusion.
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"Letter of Credit": as defined in Section 2.8.
"Letter of Credit Commitment": the commitment of the Issuer to issue
Letters of Credit in accordance with the terms hereof in an aggregate
outstanding face amount not exceeding $50,000,000 (or, if less, the Aggregate
Commitment Amount) at any time, as the same may be reduced pursuant to Section
2.6.
"Letter of Credit Exposure": at any time, (a) in respect of all Lenders,
the sum, without duplication, of (i) the maximum aggregate amount which may be
drawn under all unexpired Letters of Credit at such time (whether the conditions
for drawing thereunder have or may be satisfied), (ii) the aggregate amount, at
such time, of all unpaid drafts (which have not been dishonored) drawn under all
Letters of Credit, and (iii) the aggregate unpaid principal amount of the
Reimbursement Obligations at such time, and (b) in respect of any Lender, an
amount equal to such Lender's Commitment Percentage at such time multiplied by
the amount determined under clause (a) of this definition.
"Letter of Credit Participation": with respect to each Lender, its
obligations to the Issuer under Section 2.9.
"Letter of Credit Participation Fee": as defined in Section 3.12.
"Letter of Credit Request": a request in the form of Exhibit K.
"Lien": any mortgage, pledge, hypothecation, assignment, lien, deposit
arrangement, charge, encumbrance or other security arrangement or security
interest of any kind, or the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Loan": a Revolving Credit Loan, a Competitive Bid Loan or a Swing Line
Loan, as the case may be.
"Loan Documents": this Agreement and, upon the execution and delivery
thereof, the Notes and the Reimbursement Agreements.
"Loans": the Revolving Credit Loans, the Competitive Bid Loans and the
Swing Line Loans.
"Mandatory Borrowing": as defined in Section 2.2(c).
"Margin Stock": any "margin stock", as said term is defined in Regulation
U of the Board of Governors of the Federal Reserve System, as the same may be
amended or supplemented from time to time.
"Material Adverse": with respect to any change or effect, a material
adverse change in, or effect on, as the case may be, (i) the financial
condition, operations, business, or Property of the Borrower and the
Subsidiaries taken as a whole, (ii) the ability of the Borrower to perform its
obligations under the Loan Documents, or (iii) the ability of the Administrative
Agent, the Issuer or any Lender to enforce the Loan Documents.
"Moody's": Moody's Investors Service, Inc.
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"Multiemployer Plan": a Pension Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"Negotiated Rate": with respect to each Swing Line Loan, the rate per
annum agreed to in writing by the Borrower and the Swing Line Lender as the
interest rate which such Swing Line Loan shall bear.
"Net Worth": at any date of determination, the sum of all amounts which
would be included under shareholders' equity on a Consolidated balance sheet of
the Borrower and the Subsidiaries determined in accordance with GAAP as at such
date.
"Note": a Revolving Credit Note, a Competitive Bid Note or the Swing Line
Note, as the case may be.
"Other Credit Agreement": the 364 Day Credit Agreement, dated as of May
23, 1997, by and among the Borrower, the lenders party thereto, Fleet National
Bank, as documentation agent, JP Morgan Securities Inc., as syndication agent,
and The Bank of New York, as administrative agent, as the same may be amended,
supplemented or otherwise modified from time to time.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to the
functions thereof.
"Pension Plan": at any time, any Employee Benefit Plan (including a
Multiemployer Plan) subject to Section 302 of ERISA or Section 412 of the
Internal Revenue Code, the funding requirements of which are, or at any time
within the six years immediately preceding the time in question, were in whole
or in part, the responsibility of the Borrower, any Subsidiary or an ERISA
Affiliate.
"Person": any individual, firm, partnership, limited liability company,
joint venture, corporation, association, business trust, joint stock company,
unincorporated association, trust, Governmental Authority or any other entity,
whether acting in an individual, fiduciary, or other capacity, and for the
purpose of the definition of "ERISA Affiliate", a trade or business.
"Pricing Level": Pricing Level I, Pricing Level II, Pricing Level III,
Pricing Level IV, Pricing Level V, Pricing Level VI or Pricing Level VII, as the
case may be.
"Pricing Level I": any time when the senior unsecured long term debt
rating of the Borrower by (x) S&P is AA- or higher or (y) Moody's is Aa3 or
higher.
"Pricing Level II": any time when (i) the senior unsecured long term debt
rating of the Borrower by (x) S&P is A+ or higher or (y) Moody's is A1 or higher
and (ii) Pricing Level I does not apply.
"Pricing Level III": any time when (i) the senior unsecured long term debt
rating of the Borrower by (x) S&P is A or higher or (y) Moody's is A2 or higher
and (ii) neither Pricing Level I nor II applies.
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"Pricing Level IV": any time when (i) the senior unsecured long term debt
rating of the Borrower by (x) S&P is A- or higher or (y) Moody's is A3 or higher
and (ii) none of Pricing Level I, II or III applies.
"Pricing Level V": any time when (i) the senior unsecured long term debt
rating of the Borrower by (x) S&P is BBB+ or higher or (y) Moody's is Baa1 or
higher and (ii) none of Pricing Level I, II, III or IV applies.
"Pricing Level VI": any time when (i) the senior unsecured long term debt
rating of the Borrower by (x) S&P is BBB or higher or (y) Moody's is Baa2 or
higher and (ii) none of Pricing Level I, II, III, IV or V applies.
"Pricing Level VII": any time when none of Pricing Level I, II, III, IV, V
or VI applies.
Notwithstanding each definition of Pricing Level set forth above, if at any time
the senior unsecured long term debt ratings of the Borrower by S&P and Moody's
differ by more than one equivalent rating level, then the applicable Pricing
Level shall be determined based upon the lower such rating adjusted upwards to
the next higher rating level.
"Principal Office": from time to time, the principal office of BNY,
located on the date hereof in New York, New York.
"Prohibited Transaction": a transaction that is prohibited under Section
4975 of the Internal Revenue Code or Section 406 of ERISA and not exempt under
Section 4975 of the Internal Revenue Code or Section 408 of ERISA.
"Property": in respect of any Person, all types of real, personal or mixed
property and all types of tangible or intangible property owned or leased by
such Person.
"Regulatory Change": (a) the introduction or phasing in of any law, rule
or regulation after the date hereof, (b) the issuance or promulgation after the
date hereof of any directive, guideline or request from any central bank or
United States or foreign Governmental Authority (whether or not having the force
of law), or (c) any change after the date hereof in the interpretation of any
existing law, rule, regulation, directive, guideline or request by any central
bank or United States or foreign Governmental Authority charged with the
administration thereof, in each case applicable to the transactions contemplated
by this Agreement.
"Reimbursement Agreement": as defined in Section 2.8(b).
"Reimbursement Obligations": all obligations and liabilities of the
Borrower due and to become due (a) under the Reimbursement Agreements and (b)
hereunder in respect of Letters of Credit.
"Replaced Lender": as defined in Section 3.13.
"Replacement Lender": as defined in Section 3.13.
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"Reportable Event": with respect to any Pension Plan, (a) any event set
forth in Sections 4043(b) (other than a Reportable Event as to which the 30 day
notice requirement is waived by the PBGC under applicable regulations), 4062(e)
or 4063(a) of ERISA, or the regulations thereunder, (b) an event requiring the
Borrower, any Subsidiary or any ERISA Affiliate to provide security to a Pension
Plan under Section 401(a)(29) of the Internal Revenue Code, or (c) the failure
to make any payment required by Section 412(m) of the Internal Revenue Code.
"Required Lenders": (a) at any time prior to the Commitment Termination
Date or such earlier date as all of the Commitments shall have terminated or
been terminated in accordance herewith, Lenders having Commitment Amounts equal
to or more than 51% of the Aggregate Commitment Amount, and (b) at all other
times, Lenders holding Notes having an unpaid principal balance equal to or more
than 51% of all Loans outstanding.
"Restricted Payment": with respect to any Person, any of the following,
whether direct or indirect: (a) the declaration or payment by such Person of any
dividend or distribution on any class of Stock of such Person, other than a
dividend payable solely in shares of that class of Stock to the holders of such
class, (b) the declaration or payment by such Person of any distribution on any
other type or class of equity interest or equity investment in such Person, and
(c) any redemption, retirement, purchase or acquisition of, or sinking fund or
other similar payment in respect of, any class of Stock of, or other type or
class of equity interest or equity investment in, such Person.
'Restrictive Agreement": as defined in Section 8.7.
"Revco": Revco D.S., Inc., a Delaware corporation.
"Revco Audited Financial Statements": as defined in Section 4.13.
"Revco Existing Credit Agreement": collectively, the Amended and Restated
Credit Agreement dated as of July 27, 1995 among Revco, the financial
institutions party thereto, as revolving lenders, Banque Paribas and Bank of
America Illinois, as managing agents, and Bank of America National Trust and
Savings Association, as administrative agent, as amended, and the Credit
Agreement (364 Day Facility) dated as of November 15, 1996 among Revco, Banque
Paribas and Bank of America Illinois, as lenders, and Bank of America National
Trust and Savings Association, as administrative agent.
"Revco 9 1/8% Indenture Debt": the Indebtedness of Revco under the 9 1/8%
senior notes due 2000 issued under the Indenture, dated as of January 1, 1993,
between Revco and First Fidelity Bank, National Association, New Jersey, as
trustee, as amended by the First Amendment to Indenture, dated as of April 20,
1994.
"Revco 10 1/8% Indenture Debt": the Indebtedness of Hook SupeRx, Inc. (a
wholly-owned subsidiary of Revco), as issuer, and Revco, as guarantor, under the
10 1/8% senior notes due 2002 issued under the Indenture, dated as of June 1,
1992, between Hook SupeRx, Inc. and Star Bank, National Association, as trustee.
"Revolving Credit Loans": as defined in Section 2.1(a).
"Revolving Credit Note": as defined in Section 2.1(b).
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"S&P": Standard and Poor's Ratings Group, a division of McGraw-Hill, Inc.
"Solvent": with respect to any Person on a particular date, the condition
that on such date, (i) the fair value of the Property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair salable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (iii) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature, and (iv) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's Property would constitute an unreasonably small amount of
capital. For purposes of this definition, the amount of any contingent liability
at any time shall be computed as the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability after taking into account
probable payments by co-obligors.
"Special Counsel": Emmet, Marvin & Martin, LLP.
"Subsidiary": at any time and from time to time, any corporation,
association, partnership, limited liability company, joint venture or other
business entity of which the Borrower and/or any Subsidiary of the Borrower,
directly or indirectly at such time, either (a) in respect of a corporation,
owns or controls more than 50% of the outstanding stock having ordinary voting
power to elect a majority of the board of directors or similar managing body,
irrespective of whether a class or classes shall or might have voting power by
reason of the happening of any contingency, or (b) in respect of an association,
partnership, limited liability company, joint venture or other business entity,
is entitled to share in more than 50% of the profits and losses, however
determined.
"Swing Line Commitment": the commitment of the Swing Line Lender to make
Swing Line Loans in accordance with the terms hereof in an aggregate outstanding
principal amount not exceeding $50,000,000 (or, if less, the Aggregate
Commitment Amount) at any time, as the same may be reduced pursuant to Section
2.6.
"Swing Line Commitment Period": the period from the Effective Date to, but
excluding, the Swing Line Termination Date.
"Swing Line Exposure": at any time, in respect of any Lender, an amount
equal to the aggregate principal balance of Swing Line Loans at such time
multiplied by such Lender's Commitment Percentage at such time.
"Swing Line Interest Period": as to any Swing Line Loan, the period
commencing on the date of such Swing Line Loan and ending on the date set forth
by the Borrower in the Borrowing Request with respect to such Swing Line Loan;
provided that the last day of any Swing Line Interest Period shall not be
earlier than one day after the date of such Swing Line Loan or later than 7 days
after the date of such Swing Line Loan and in no event later than the Swing Line
Termination Date; and provided further that if any Swing Line Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day.
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"Swing Line Lender": BNY.
"Swing Line Loan" and "Swing Line Loans": as defined in Section 2.2(a).
"Swing Line Maturity Date": as defined in Section 2.2(a).
"Swing Line Note": as defined in Section 2.2(b).
"Swing Line Participation Amount": as defined in Section 2.2(d).
"Swing Line Termination Date": the date which is 7 Domestic Business Days
prior to the Commitment Termination Date.
"Syndication Agent": as defined in the preamble.
"Tangible Net Worth": at any date of determination, Net Worth less all
assets of the Borrower and its Subsidiaries included in such Net Worth,
determined on a Consolidated basis at such date, that would be classified as
intangible assets in accordance with GAAP.
"Termination Event": with respect to any Pension Plan, (a) a Reportable
Event, (b) the termination of a Pension Plan under Section 4041(c) of ERISA, or
the filing of a notice of intent to terminate a Pension Plan under Section
4041(c) of ERISA, or the treatment of a Pension Plan amendment as a termination
under Section 4041(e) of ERISA (except an amendment made after such Pension Plan
satisfies the requirement for a standard termination under Section 4041(b) of
ERISA), (c) the institution of proceedings by the PBGC to terminate a Pension
Plan under Section 4042 of ERISA, or (d) the appointment of a trustee to
administer any Pension Plan under Section 4042 of ERISA.
"Total Capitalization": at any date, the sum of the Borrower's
Consolidated Indebtedness and shareholders' equity on such date, determined in
accordance with GAAP.
"Type": with respect to any Revolving Credit Loan, the characteristic of
such Loan as an ABR Advance or a Eurodollar Advance, each of which constitutes a
Type of Revolving Credit Loan.
"Unqualified Amount": as defined in Section 3.4(c).
"Upstream Dividends": as defined in Section 8.7.
1.2 Principles of Construction
(a) All capitalized terms defined in this Agreement shall have the
meanings given such capitalized terms herein when used in the other Loan
Documents or in any certificate, opinion or other document made or delivered
pursuant hereto or thereto, unless otherwise expressly provided therein.
(b) Unless otherwise expressly provided herein, the word "fiscal"
when used herein shall refer to the relevant fiscal period of the Borrower. As
used in the Loan
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Documents and in any certificate, opinion or other document made or delivered
pursuant thereto, accounting terms not defined in Section 1.1, and accounting
terms partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein", "hereto" and "hereunder" and
similar words when used in each Loan Document shall refer to such Loan Document
as a whole and not to any particular provision of such Loan Document, and
Section, schedule and exhibit references contained therein shall refer to
Sections thereof or schedules or exhibits thereto unless otherwise expressly
provided therein.
(d) All references herein to a time of day shall mean the then
applicable time in New York, New York, unless otherwise expressly provided
herein.
(e) Section headings have been inserted in the Loan Documents for
convenience only and shall not be construed to be a part thereof. Unless the
context otherwise requires, words in the singular number include the plural, and
words in the plural include the singular.
(f) Whenever in any Loan Document or in any certificate or other
document made or delivered pursuant thereto, the terms thereof require that a
Person sign or execute the same or refer to the same as having been so signed or
executed, such terms shall mean that the same shall be, or was, duly signed or
executed by (i) in respect of any Person that is a corporation, any duly
authorized officer thereof, and (ii) in respect of any other Person (other than
an individual), any analogous counterpart thereof.
(g) The words "include" and "including", when used in each Loan
Document, shall mean that the same shall be included "without limitation",
unless otherwise specifically provided.
2. AMOUNT AND TERMS OF LOANS
2.1 Revolving Credit Loans
(a) Subject to the terms and conditions hereof, each Lender
severally (and not jointly) agrees to make loans under this Agreement (each a
"Revolving Credit Loan" and, collectively with each other Revolving Credit Loan
of such Lender and/or with each Revolving Credit Loan of each other Lender, the
"Revolving Credit Loans") to the Borrower from time to time during the
Commitment Period, during which period the Borrower may borrow, prepay and
reborrow in accordance with the provisions hereof. Immediately after making each
Revolving Credit Loan and after giving effect to all Swing Line Loans and
Competitive Bid Loans repaid and all Reimbursement Obligations paid on the same
date, the Aggregate Credit Exposure will not exceed the Aggregate Commitment
Amount. With respect to each Lender, at the time of the making of any Revolving
Credit Loan, the sum of (I) the principal amount of such Lender's Revolving
Credit Loan constituting a part of the Revolving Credit Loans to be made, (II)
the aggregate principal balance of all other Revolving Credit Loans (exclusive
of Revolving Credit Loans which are repaid with the proceeds of, and
simultaneously with the incurrence of, the Revolving Credit Loans to be made)
then outstanding from such Lender and (III) the product of (A) such Lender's
Commitment Percentage and (B) the sum of (1) the aggregate principal
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balance of all Swing Line Loans (exclusive of Swing Line Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
Revolving Credit Loans) then outstanding and (2) the Letter of Credit Exposure
of all Lenders, will not exceed the Commitment of such Lender at such time.
During the Commitment Period, the Borrower may borrow, prepay in whole or in
part and reborrow Revolving Credit Loans under the Commitments, all in
accordance with the terms and conditions hereof. At the option of the Borrower,
indicated in a Borrowing Request, Revolving Credit Loans may be made as ABR
Advances or Eurodollar Advances.
(b) Revolving Credit Loans made by each Lender shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit B-1 (each,
as indorsed or modified from time to time, a "Revolving Credit Note"), payable
to the order of such Lender, dated the first Borrowing Date, and in the maximum
stated principal amount equal to such Lender's Commitment Amount and evidencing
the obligation of the Borrower to pay such Commitment Amount, or, if less, the
aggregate unpaid principal balance of the Revolving Credit Loans made by such
Lender, with interest thereon as provided herein.
(c) The aggregate outstanding principal balance of all Revolving Credit
Loans shall be due and payable on the Commitment Termination Date or on such
earlier date upon which all of the Commitments shall have been voluntarily
terminated by the Borrower in accordance with Section 2.6.
2.2 Swing Line Loans
(a) Subject to the terms and conditions hereof, the Swing Line
Lender agrees to make loans under this Agreement (each a "Swing Line Loan" and,
collectively, the "Swing Line Loans") to the Borrower from time to time during
the Swing Line Commitment Period. Swing Line Loans (i) may be repaid and
reborrowed in accordance with the provisions hereof, (ii) shall not, immediately
after giving effect thereto, result in the Aggregate Credit Exposure exceeding
the Aggregate Commitment Amount, and (iii) shall not, immediately after giving
effect thereto, result in the aggregate outstanding principal balance of all
Swing Line Loans exceeding the Swing Line Commitment. The Swing Line Lender
shall not be obligated to make any Swing Line Loan at a time when any Lender
shall be in default of its obligations under this Agreement unless the Swing
Line Lender has entered into arrangements satisfactory to it and the Borrower to
eliminate the Swing Line Lender's risk with respect to such defaulting Lender's
participation in such Swing Line Loan. The Swing Line Lender will not make a
Swing Line Loan if the Administrative Agent, or any Lender by notice to the
Swing Line Lender and the Borrower no later than one Business Day prior to the
Borrowing Date with respect to such Swing Line Loan, shall have determined that
the conditions set forth in Sections 5 and 6 have not been satisfied and such
conditions remain unsatisfied as of the requested time of the making of such
Loan. Each Swing Line Loan shall be due and payable on the day (the "Swing Line
Maturity Date") being the earliest of the last day of the Swing Line Interest
Period applicable thereto, the date on which the Swing Line Commitment shall
have been voluntarily terminated by the Borrower in accordance with Section 2.6,
and the date on which the Loans shall become due and payable pursuant to the
provisions hereof, whether by acceleration or otherwise. Each Swing Line Loan
shall bear interest at the Negotiated Rate applicable thereto. The Swing Line
Lender shall disburse the proceeds of Swing Line
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Loans at its office designated in Section 11.2 by crediting such proceeds to an
account of the Borrower maintained with the Swing Line Lender.
(b) Swing Line Loans shall be evidenced by a promissory note of the
Borrower, substantially in the form of Exhibit B-3 (as indorsed or modified from
time to time, the "Swing Line Note"), payable to the order of the Swing Line
Lender, dated the first Borrowing Date, and in the maximum stated principal
amount equal to the Swing Line Commitment and evidencing the obligation of the
Borrower to pay the amount of the Swing Line Commitment or, if less, the
aggregate unpaid principal balance of the Swing Line Loans made by the Swing
Line Lender which shall not have been funded by a Mandatory Borrowing, together
with interest thereon as provided herein.
(c) On any Business Day on which a Swing Line Loan shall be due and
payable and shall remain unpaid, the Swing Line Lender may, in its sole
discretion, give notice to the Lenders and the Borrower that such outstanding
Swing Line Loan shall be funded with a borrowing of Revolving Credit Loans
(provided that such notice shall be deemed to have been automatically given upon
the occurrence of a Default or an Event of Default under Sections 9.1(h) or
(i)), in which case a borrowing of Revolving Credit Loans made as ABR Advances
(each such borrowing, a "Mandatory Borrowing"), shall be made by all Lenders pro
rata based on each such Lender's Commitment Percentage on the Business Day
immediately succeeding the giving of such notice. The proceeds of each Mandatory
Borrowing shall be remitted directly to the Swing Line Lender to repay such
outstanding Swing Line Loan. Each Lender irrevocably agrees to make a Revolving
Credit Loan pursuant to each Mandatory Borrowing in the amount and in the manner
specified in the preceding sentence and on the date specified in writing by the
Swing Line Lender notwithstanding: (i) whether the amount of such Mandatory
Borrowing complies with the minimum amount for Loans otherwise required
hereunder, (ii) whether any condition specified in Section 6 is then
unsatisfied, (iii) whether a Default or an Event of Default then exists, (iv)
the Borrowing Date of such Mandatory Borrowing, (v) the aggregate principal
amount of all Loans then outstanding, (vi) the Aggregate Credit Exposure at such
time and (vii) the amount of the Commitments at such time.
(d) Upon each receipt by a Lender of notice of an Event of Default
from the Administrative Agent pursuant to Section 10.5, such Lender shall
purchase unconditionally, irrevocably, and severally (and not jointly) from the
Swing Line Lender a participation in the outstanding Swing Line Loans (including
accrued interest thereon) in an amount equal to the product of its Commitment
Percentage and the outstanding balance of the Swing Line Loans (each, a "Swing
Line Participation Amount"). Each Lender shall also be liable for an amount
equal to the product of its Commitment Percentage and any amounts paid by the
Borrower pursuant to this Section that are subsequently rescinded or avoided, or
must otherwise be restored or returned. Such liabilities shall be unconditional
and without regard to the occurrence of any Default or Event of Default or the
compliance by the Borrower with any of its obligations under the Loan Documents.
(e) In furtherance of Section 2.2(d), upon each receipt by a Lender
of notice of an Event of Default from the Administrative Agent pursuant to
Section 10.5, such Lender shall promptly make available to the Administrative
Agent for the account of the Swing Line Lender its Swing Line Participation
Amount at the office of the Administrative Agent specified in Section 11.2, in
lawful money of the United States and in immediately available funds. The
Administrative Agent shall deliver the payments made
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by each Lender pursuant to the immediately preceding sentence to the Swing Line
Lender promptly upon receipt thereof in like funds as received. Each Lender
hereby indemnifies and agrees to hold harmless the Administrative Agent and the
Swing Line Lender from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, costs and
expenses resulting from any failure on the part of such Lender to pay, or from
any delay in paying the Administrative Agent any amount such Lender is required
by notice from the Administrative Agent to pay in accordance with this Section
upon receipt of notice of an Event of Default from the Administrative Agent
pursuant to Section 10.5 (except in respect of losses, liabilities or other
obligations suffered by the Administrative Agent or the Swing Line Lender, as
the case may be, resulting from the gross negligence or willful misconduct of
the Administrative Agent or the Swing Line Lender, as the case may be), and such
Lender shall pay interest to the Administrative Agent for the account of the
Swing Line Lender from the date such amount was due until paid in full, on the
unpaid portion thereof, at a rate of interest per annum, whether before or after
judgment, equal to (i) from the date such amount was due until the third day
therefrom, the Federal Funds Effective Rate, and (ii) thereafter, the Federal
Funds Effective Rate plus 2%, payable upon demand by the Swing Line Lender. The
Administrative Agent shall distribute such interest payments to the Swing Line
Lender upon receipt thereof in like funds as received.
(f) Whenever the Administrative Agent is reimbursed by the Borrower
for the account of the Swing Line Lender for any payment in connection with
Swing Line Loans and such payment relates to an amount previously paid by a
Lender pursuant to this Section, the Administrative Agent will promptly remit
such payment to such Lender.
2.3 Notice of Borrowing-Revolving Credit Loans and Swing Line Loans
The Borrower agrees to notify the Administrative Agent (and with
respect to a Swing Line Loan, the Swing Line Lender), which notification shall
be irrevocable, no later than (a) 12:00 Noon on the proposed Borrowing Date in
the case of Swing Line Loans, (b) 10:00 A.M. on the proposed Borrowing Date in
the case of Revolving Credit Loans to consist of ABR Advances and (c) 10:00 A.M.
at least two Eurodollar Business Days prior to the proposed Borrowing Date in
the case of Revolving Credit Loans to consist of Eurodollar Advances. Each such
notice shall specify (i) the aggregate amount requested to be borrowed under the
Commitments or the Swing Line Commitment, (ii) the proposed Borrowing Date,
(iii) whether a borrowing of Revolving Credit Loans is to be of ABR Advances or
Eurodollar Advances, and the amount of each thereof (iv) the Interest Period for
such Eurodollar Advances and (v) the Swing Line Interest Period for, and the
amount of, each Swing Line Loan. Each such notice shall be promptly confirmed by
delivery to the Administrative Agent (and, with respect to a Swing Line Loan,
the Swing Line Lender) of a Borrowing Request. Each Eurodollar Advance to be
made on a Borrowing Date, when aggregated with all amounts to be Converted to
Eurodollar Advances on such date and having the same Interest Period as such
Eurodollar Advance, shall equal no less than $10,000,000, or an integral
multiple of $1,000,000 in excess thereof. Each ABR Advance made on each
Borrowing Date shall equal no less than $5,000,000 or an integral multiple of
$500,000 in excess thereof. Each Swing Line Loan made on each Borrowing Date
shall equal no less than $1,000,000 or an integral multiple of $500,000 in
excess thereof. The Administrative Agent shall promptly notify each Lender (by
telephone or otherwise, such notification to be confirmed by fax or other
writing) of each such Borrowing Request. Subject to its receipt of each such
notice from the Administrative Agent and
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subject to the terms and conditions hereof, (A) each Lender shall make
immediately available funds available to the Administrative Agent at the address
therefor set forth in Section 11.2 not later than 1:00 P.M. on each Borrowing
Date in an amount equal to such Lender's Commitment Percentage of the Revolving
Credit Loans requested by the Borrower on such Borrowing Date and/or (B) the
Swing Line Lender shall make immediately available funds available to the
Borrower on such Borrowing Date in an amount equal to the Swing Line Loan
requested by the Borrower.
2.4 Competitive Bid Loans and Procedure
(a) Subject to the terms and conditions hereof, the Borrower may
request competitive bid loans under this Agreement (each a "Competitive Bid
Loan") during the Commitment Period. In order to request Competitive Bids, the
Borrower shall deliver by hand or fax to the Administrative Agent a duly
completed Competitive Bid Request not later than 11:00 A.M., one Domestic
Business Day before the proposed Borrowing Date therefor. A Competitive Bid
Request that does not conform substantially to the format of Exhibit G may be
rejected by the Administrative Agent in the Administrative Agent's reasonable
discretion, and the Administrative Agent shall promptly notify the Borrower of
such rejection by fax and telephone. Each Competitive Bid Request shall specify
(x) the proposed Borrowing Date for the Competitive Bid Loans then being
requested (which shall be a Domestic Business Day) and the aggregate principal
amount thereof and (y) the Competitive Interest Period or Interest Periods
(which shall not exceed ten different Interest Periods in a single Competitive
Bid Request), with respect thereto (which may not end after the Domestic
Business Day immediately preceding the Commitment Termination Date). Promptly
after its receipt of each Competitive Bid Request that is not rejected as
aforesaid, the Administrative Agent shall invite by fax (in the form of Exhibit
H) the Lenders to bid, on the terms and conditions of this Agreement, to make
Competitive Bid Loans pursuant to such Competitive Bid Request.
(b) Each Lender, in its sole and absolute discretion, may make one
or more Competitive Bids to the Borrower responsive to a Competitive Bid
Request. Subject to subsection (f) below, each Competitive Bid by a Lender must
be received by the Administrative Agent not later than 10:00 A.M. on the
proposed Borrowing Date for the relevant Competitive Bid Loan. Multiple bids
will be accepted by the Administrative Agent. Bids to make Competitive Bid Loans
that do not conform substantially to the format of Exhibit I may be rejected by
the Administrative Agent after conferring with, and upon the instruction of, the
Borrower, and the Administrative Agent shall notify the Lender making such
nonconforming bid of such rejection as soon as practicable. Each Competitive Bid
shall be irrevocable and shall specify (x) the principal amount (which (1) shall
be in a minimum principal amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (2) may equal the entire principal amount
requested by the Borrower) of the Competitive Bid Loan or Competitive Bid Loans
that the Lender is willing to make to the Borrower, (y) the Competitive Bid Rate
or Rates at which the Lender is prepared to make such Competitive Bid Loan or
Competitive Bid Loans, and (z) the Competitive Interest Period with respect to
each such Competitive Bid Loan and the last day thereof. If any Lender shall
elect not to make a Competitive Bid, such Lender shall so notify the
Administrative Agent by fax not later than 10:00 A.M. on the proposed Borrowing
Date therefor, provided that the failure by any Lender to give any such notice
shall not obligate such Lender to make any Competitive Bid Loan in connection
with the relevant Competitive Bid Request.
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(c) With respect to each Competitive Bid Request, the Administrative
Agent shall (i) notify the Borrower by fax by 11:00 A.M. on the proposed
Borrowing Date with respect thereto of each Competitive Bid made, the
Competitive Bid Rate applicable thereto and the identity of the Lender that made
such Competitive Bid, and (ii) send a list of all Competitive Bids to the
Borrower for its records as soon as practicable after completion of the bidding
process. Each notice and list sent by the Administrative Agent pursuant to this
Section 2.4(c) shall list the Competitive Bids in ascending yield order.
(d) The Borrower may in its sole and absolute discretion, subject
only to the provisions of this Section 2.4(d), accept or reject any Competitive
Bid made in accordance with the procedures set forth in this Section 2.4, and
the Borrower shall notify the Administrative Agent by telephone, confirmed by
fax in the form of a Competitive Bid Accept/Reject Letter, whether and to what
extent it has decided to accept or reject any or all of such Competitive Bids
not later than 12:00 Noon on the proposed Borrowing Date therefor, provided that
the failure by the Borrower to give such notice shall be deemed to be a
rejection of all such Competitive Bids. In connection with each acceptance of
one or more Competitive Bids by the Borrower:
(1) the Borrower shall not accept a Competitive Bid made at a
particular Competitive Bid Rate if the Borrower has decided to reject a
Competitive Bid made at a lower Competitive Bid Rate unless the acceptance
of such lower Competitive Bid would subject the Borrower to any
requirement to withhold any taxes or deduct any amount from any amounts
payable under the Loan Documents, in which case the Borrower may reject
such lower Competitive Bid,
(2) the aggregate amount of the Competitive Bids accepted by the
Borrower shall not exceed the principal amount specified in the
Competitive Bid Request therefor,
(3) if the Borrower shall desire to accept a Competitive Bid made at
a particular Competitive Bid Rate, it must accept all other Competitive
Bids at such Competitive Bid Rate, except for any such Competitive Bid the
acceptance of which would subject the Borrower to any requirement to
withhold any taxes or deduct any amount from any amounts payable under the
Loan Documents, provided that if the acceptance of all such other
Competitive Bids would cause the aggregate amount of all such accepted
Competitive Bids to exceed the amount requested, then such acceptance
shall be made pro rata in accordance with the amount of each such
Competitive Bid at such Competitive Bid Rate,
(4) except pursuant to clause (3) above, no Competitive Bid shall be
accepted unless the Competitive Bid Loan with respect thereto shall be in
a minimum principal amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and
(5) no Competitive Bid shall be accepted and no Competitive Bid Loan
shall be made, if immediately after giving effect thereto, the Aggregate
Credit Exposure would exceed the Aggregate Commitment Amount.
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(e) The Administrative Agent shall promptly fax to each bidding
Lender (with a copy to the Borrower) a Competitive Bid Accept/Reject Letter
advising such Lender whether its Competitive Bid has been accepted (and if
accepted, in what amount and at what Competitive Bid Rate), and each successful
bidder so notified will thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Bid Loan in respect of which each of
its Competitive Bids has been accepted by making immediately available funds
available to the Administrative Agent at its address set forth in Section 11.2
not later than 1:00 P.M. on the Borrowing Date for such Competitive Bid Loan in
the amount thereof.
(f) Anything herein to the contrary notwithstanding, if the
Administrative Agent shall elect to submit a Competitive Bid in its capacity as
a Lender, it shall submit such bid directly to the Borrower not later than 9:30
A.M. on the relevant proposed Borrowing Date.
(g) All notices required by this Section shall be given in
accordance with Section 11.2.
(h) The Competitive Bid Loans made by each Lender shall be evidenced
by a promissory note of the Borrower, substantially in the form of Exhibit B-2
(each, as indorsed or modified from time to time, a "Competitive Bid Note"),
payable to the order of such Lender, dated the first Borrowing Date evidencing
the obligation of the Borrower to pay the aggregate unpaid principal balance of
all Competitive Bid Loans made by such Lender to the Borrower, together with
interest thereon as provided herein. Each Competitive Bid Loan shall be due and
payable on the last day of the Interest Period applicable thereto or on such
earlier date upon which the Loans shall become due and payable hereunder,
whether by acceleration or otherwise.
2.5 Use of Proceeds
The Borrower agrees that the proceeds of the Loans and Letters of
Credit shall be used solely for its general corporate purposes not inconsistent
with the provisions hereof, including as a backup for the Borrower's commercial
paper and to refinance all outstanding Indebtedness (excluding letters of credit
issued under the Revco Existing Credit Agreement) under the Existing Credit
Agreements. Notwithstanding anything to the contrary contained in any Loan
Document, the Borrower further agrees that no part of the proceeds of any Loan
or Letter of Credit will be used, directly or indirectly, for a purpose which
violates any law, rule or regulation of any Governmental Authority, including
the provisions of Regulations G, U or X of the Board of Governors of the Federal
Reserve System, as amended or any provision of this Agreement, including,
without limitation, the provisions of Section 4.9.
2.6 Termination or Reduction of Commitments
(a) Voluntary Termination or Reductions. At the Borrower's option
and upon at least three Domestic Business Days' prior irrevocable notice to the
Administrative Agent, the Borrower may (i) terminate the Commitments, the Swing
Line Commitment and the Letter of Credit Commitment, at any time, or (ii)
permanently reduce the Aggregate Commitment Amount, the Swing Line Commitment or
the Letter of Credit Commitment, in part at any time and from time to time,
provided that (1) each such partial
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reduction shall be in an amount equal to at least (i) in the case of the
Aggregate Commitment Amount, $10,000,000 or an integral multiple of $1,000,000
in excess thereof, (ii) in the case of the Swing Line Commitment, $1,000,000, or
an integral multiple of $1,000,000 in excess thereof, and (iii) in the case of
the Letter of Credit Commitment, $1,000,000, or an integral multiple of
$1,000,000 in excess thereof, and (2) immediately after giving effect to each
such reduction, (i) the Aggregate Commitment Amount shall equal or exceed the
sum of the aggregate outstanding principal balance of all Loans and the Letter
of Credit Exposure, (ii) the Swing Line Commitment shall equal or exceed the
aggregate outstanding principal balance of all Swing Line Loans and (iii) the
Letter of Credit Commitment shall equal or exceed the Letter of Credit Exposure
of all Lenders, and provided further that a notice of termination of the
Commitments, the Swing Line Commitment and the Letter of Credit Commitment
delivered by the Borrower may state that such notice is conditioned upon the
effectiveness of other credit facilities (such notice to specify the proposed
effective date), in which case such notice may be revoked by the Borrower (by
notice to the Administrative Agent on or prior to such specified effective date)
if such condition is not satisfied and the Borrower shall indemnify the Lenders
in accordance with Section 3.5.
(b) In General. Each reduction of the Aggregate Commitment Amount
shall be made by reducing each Lender's Commitment Amount by a sum equal to such
Lender's Commitment Percentage of the amount of such reduction.
2.7 Prepayments of Loans
(a) Voluntary Prepayments. The Borrower may prepay Revolving Credit
Loans, Competitive Bid Loans and Swing Line Loans, in whole or in part, without
premium or penalty, but subject to Section 3.5 at any time and from time to
time, by notifying the Administrative Agent, which notification shall be
irrevocable, at least two Eurodollar Business Days, in the case of a prepayment
of Eurodollar Advances, two Business Days, in the case of Competitive Bid Loans,
or one Domestic Business Day, in the case of a prepayment of Swing Line Loans
and ABR Advances, prior to the proposed prepayment date specifying (i) the Loans
to be prepaid, (ii) the amount to be prepaid, and (iii) the date of prepayment.
Upon receipt of each such notice, the Administrative Agent shall promptly notify
each Lender thereof. Each such notice given by the Borrower pursuant to this
Section shall be irrevocable, provided that, if a notice of prepayment is given
in connection with a conditional notice of termination of the Commitments, the
Swing Line Commitment and the Letter of Credit Commitment as contemplated by
Section 2.6, then such notice of prepayment may be revoked if such notice of
termination is revoked in accordance with Section 2.6, and the Borrower shall
indemnify the Lenders in accordance with Section 3.5. Each partial prepayment
under this Section shall be in a minimum amount of $1,000,000 ($500,000 in the
case of ABR Advances and Swing Line Loans) or an integral multiple of $1,000,000
($100,000 in the case of ABR Advances and Swing Line Loans) in excess thereof.
(b) In General. Simultaneously with each prepayment hereunder, the
Borrower shall prepay all accrued interest on the amount prepaid through the
date of prepayment and indemnify the Lenders in accordance with Section 3.5.
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2.8 Letter of Credit Sub-facility
(a) Subject to the terms and conditions hereof and the payment by
the Borrower to the Issuer of such fees as the Borrower and the Issuer shall
have agreed in writing, the Issuer agrees, in reliance on the agreement of the
other Lenders set forth in Section 2.9, to issue standby letters of credit (each
a "Letter of Credit" and, collectively, the "Letters of Credit") during the
Commitment Period for the account of the Borrower, provided that immediately
after the issuance of each Letter of Credit (i) the Letter of Credit Exposure of
all Lenders shall not exceed the Letter of Credit Commitment, and (ii) the
Aggregate Credit Exposure shall not exceed the Aggregate Commitment Amount. Each
Letter of Credit shall have an expiration date which shall be not later than the
earlier to occur of one year from the date of issuance thereof or 5 days prior
to the Commitment Termination Date. No Letter of Credit shall be issued if the
Administrative Agent, or any Lender by notice to the Administrative Agent and
the Issuer no later than 3:00 P.M. one Domestic Business Day prior to the
requested date of issuance of such Letter of Credit, shall have determined that
the conditions set forth in Sections 5 and 6 have not been satisfied.
(b) Each Letter of Credit shall be issued for the account of the
Borrower in support of an obligation of the Borrower in favor of a beneficiary
who has requested the issuance of such Letter of Credit as a condition to a
transaction entered into in connection with the Borrower's ordinary course of
business. The Borrower shall give the Administrative Agent a Letter of Credit
Request for the issuance of each Letter of Credit by 12:00 Noon at least two
Domestic Business Days prior to the requested date of issuance. Such Letter of
Credit Request shall be accompanied by the Issuer's standard Application and
Agreement for Standby Letter of Credit (each a "Reimbursement Agreement")
executed by the Borrower, and shall specify (i) the beneficiary of such Letter
of Credit and the obligations of the Borrower in respect of which such Letter of
Credit is to be issued, (ii) the Borrower's proposal as to the conditions under
which a drawing may be made under such Letter of Credit and the documentation to
be required in respect thereof, (iii) the maximum amount to be available under
such Letter of Credit, and (iv) the requested date of issuance. Upon receipt of
such Letter of Credit Request from the Borrower, the Administrative Agent shall
promptly notify the Issuer and each other Lender thereof. The Issuer shall, on
the proposed date of issuance and subject to the other terms and conditions of
this Agreement, issue the requested Letter of Credit. Each Letter of Credit
shall be in form and substance reasonably satisfactory to the Issuer, with such
provisions with respect to the conditions under which a drawing may be made
thereunder and the documentation required in respect of such drawing as the
Issuer shall reasonably require. Each Letter of Credit shall be used solely for
the purposes described therein.
(c) Each payment by the Issuer of a draft drawn under a Letter of
Credit shall give rise to the obligation of the Borrower to immediately
reimburse the Issuer for the amount thereof. The Issuer shall promptly notify
the Borrower of such payment by the Issuer of a draft drawn under a Letter of
Credit, but any failure to so notify shall not in any manner affect the
obligation of the Borrower to make reimbursement when due. In lieu of such
notice, if the Borrower has not made reimbursement prior to the end of the
Business Day when due, the Borrower hereby authorizes the Issuer to deduct the
amount of any such reimbursement from such account(s) as the Borrower may from
time to time designate in writing to the Issuer, upon which the Issuer shall
apply the amount of such deduction to such reimbursement. If all or any portion
of any reimbursement obligation in
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respect of a Letter of Credit shall not be paid when due (whether at the stated
maturity thereof, by acceleration or otherwise), such overdue amount shall bear
interest, payable upon demand, at a rate per annum equal to the Alternate Base
Rate plus the Applicable Margin applicable to ABR Advances plus 2%, from the
date of such nonpayment until paid in full (whether before or after the entry of
a judgment thereon).
2.9 Letter of Credit Participation
(a) Each Lender hereby unconditionally and irrevocably, severally
(and not jointly) takes an undivided participating interest in the obligations
of the Issuer under and in connection with each Letter of Credit in an amount
equal to such Lender's Commitment Percentage of the amount of such Letter of
Credit. Each Lender shall be liable to the Issuer for its Commitment Percentage
of the unreimbursed amount of any draft drawn and honored under each Letter of
Credit. Each Lender shall also be liable for an amount equal to the product of
its Commitment Percentage and any amounts paid by the Borrower pursuant to
Sections 2.8 and 2.10 that are subsequently rescinded or avoided, or must
otherwise be restored or returned. Such liabilities shall be unconditional and
without regard to the occurrence of any Default or Event of Default or the
compliance by the Borrower with any of its obligations under the Loan Documents.
(b) The Issuer shall promptly notify the Administrative Agent, and
the Administrative Agent shall promptly notify each Lender (which notice shall
be promptly confirmed in writing), of the date and the amount of each draft paid
under each Letter of Credit with respect to which full reimbursement payment
shall not have been made by the Borrower as provided in Section 2.8(c), and
forthwith upon receipt of such notice, such Lender shall promptly make available
to the Administrative Agent for the account of the Issuer its Commitment
Percentage of the amount of such unreimbursed draft at the office of the
Administrative Agent specified in Section 11.2 in lawful money of the United
States and in immediately available funds. The Administrative Agent shall
distribute the payments made by each Lender pursuant to the immediately
preceding sentence to the Issuer promptly upon receipt thereof in like funds as
received. Each Lender shall indemnify and hold harmless the Administrative Agent
and the Issuer from and against any and all losses, liabilities (including
liabilities for penalties), actions, suits, judgments, demands, costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) resulting from any failure on the part of such Lender to provide, or
from any delay in providing, the Administrative Agent with such Lender's
Commitment Percentage of the amount of any payment made by the Issuer under a
Letter of Credit in accordance with this clause (b) above (except in respect of
losses, liabilities or other obligations suffered by the Administrative Agent or
the Issuer, as the case may be, resulting from the gross negligence or willful
misconduct of the Administrative Agent or the Issuer, as the case may be). If a
Lender does not make available to the Administrative Agent when due such
Lender's Commitment Percentage of any unreimbursed payment made by the Issuer
under a Letter of Credit, such Lender shall be required to pay interest to the
Administrative Agent for the account of the Issuer on such Lender's Commitment
Percentage of such payment at a rate of interest per annum equal to (i) from the
date such Lender should have made such amount available until the third day
therefrom, the Federal Funds Effective Rate, and (ii) thereafter, the Federal
Funds Effective Rate plus 2%, in each case payable upon demand by the Issuer.
The Administrative Agent shall distribute such interest payments to the Issuer
upon receipt thereof in like funds as received.
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(c) Whenever the Administrative Agent is reimbursed by the Borrower,
for the account of the Issuer, for any payment under a Letter of Credit and such
payment relates to an amount previously paid by a Lender in respect of its
Commitment Percentage of the amount of such payment under such Letter of Credit,
the Administrative Agent (or the Issuer, if such payment by a Lender was paid by
the Administrative Agent to the Issuer) will promptly pay over such payment to
such Lender.
2.10 Absolute Obligation with respect to Letter of Credit Payments
The Borrower's obligation to reimburse the Administrative Agent for
the account of the Issuer for each payment under or in respect of each Letter of
Credit shall be absolute and unconditional under any and all circumstances and
irrespective of any set-off, counterclaim or defense to payment which the
Borrower may have or have had against the beneficiary of such Letter of Credit,
the Administrative Agent, the Issuer, the Swing Line Lender, any Lender or any
other Person, including, without limitation, any defense based on the failure of
any drawing to conform to the terms of such Letter of Credit, any drawing
document proving to be forged, fraudulent or invalid, or the legality, validity,
regularity or enforceability of such Letter of Credit, provided, however, that,
with respect to any Letter of Credit, the foregoing shall not relieve the Issuer
of any liability it may have to the Borrower for any actual damages sustained by
the Borrower arising from a wrongful payment (or failure to pay) under such
Letter of Credit made as a result of the Issuer's gross negligence or willful
misconduct.
3. PROCEEDS, PAYMENTS, CONVERSIONS, INTEREST, YIELD PROTECTION AND FEES
3.1 Disbursement of the Proceeds of the Loans
The Administrative Agent shall disburse the proceeds of the Loans
(other than the Swing Line Loans) at its office specified in Section 11.2 by
crediting to the Borrower's general deposit account with the Administrative
Agent the funds received from each Lender. Unless the Administrative Agent shall
have received prior notice from a Lender (by telephone or otherwise, such notice
to be confirmed by fax or other writing) that such Lender will not make
available to the Administrative Agent such Lender's Commitment Percentage of the
Revolving Credit Loans, or the amount of any Competitive Bid Loan, to be made by
it on a Borrowing Date, the Administrative Agent may assume that such Lender has
made such amount available to the Administrative Agent on such Borrowing Date in
accordance with this Section, provided that, in the case of a Revolving Credit
Loan, such Lender received notice thereof from the Administrative Agent in
accordance with the terms hereof, and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower on such Borrowing Date a
corresponding amount. If and to the extent such Lender shall not have so made
such amount available to the Administrative Agent, such Lender and the Borrower
severally agree to pay to the Administrative Agent, forthwith on demand, such
corresponding amount (to the extent not previously paid by the other), together
with interest thereon for each day from the date such amount is made available
to the Borrower until the date such amount is paid to the Administrative Agent,
at a rate per annum equal to, in the case of the Borrower, the applicable
interest rate set forth in Section 3.4(a) and, in the case of such Lender, the
Federal Funds Effective Rate from the date such payment is due until the third
day after such date and, thereafter, at the Federal Funds Effective Rate plus
2%. Any such payment by
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the Borrower shall be without prejudice to its rights against such Lender. If
such Lender shall pay to the Administrative Agent such corresponding amount,
such amount so paid shall constitute such Lender's Loan as part of such Loans
for purposes of this Agreement, which Loan shall be deemed to have been made by
such Lender on the Borrowing Date applicable to such Loans.
3.2 Payments
(a) Each borrowing of Revolving Credit Loans by the Borrower from
the Lenders, any Conversion of Revolving Credit Loans from one Type to another,
and any reduction in the Commitments shall be made pro rata according to the
Commitment Percentage of each Lender. Each payment, including each prepayment,
of principal and interest on the Loans and of the Facility Fee and the Letter of
Credit Participation Fee (collectively, together with all of the other fees to
be paid to the Administrative Agent, the Lenders, the Issuer and the Swing Line
Lender in connection with the Loan Documents, the "Fees"), and of all of the
other amounts to be paid to the Administrative Agent and the Lenders in
connection with the Loan Documents shall be made by the Borrower to the
Administrative Agent at its office specified in Section 11.2 in funds
immediately available in New York by 3:00 P.M. on the due date for such payment.
The failure of the Borrower to make any such payment by such time shall not
constitute a default hereunder, provided that such payment is made on such due
date, but any such payment made after 3:00 P.M. on such due date shall be deemed
to have been made on the next Domestic Business Day or Eurodollar Business Day,
as the case may be, for the purpose of calculating interest on amounts
outstanding on the Loans. If the Borrower has not made any such payment prior to
3:00 P.M., the Borrower hereby authorizes the Administrative Agent to deduct the
amount of any such payment from such account(s) as the Borrower may from time to
time designate in writing to the Administrative Agent, upon which the
Administrative Agent shall apply the amount of such deduction to such payment.
Promptly upon receipt thereof by the Administrative Agent, each payment of
principal and interest on the: (i) Revolving Credit Loans shall be remitted by
the Administrative Agent in like funds as received to each Lender (a) first, pro
rata according to the amount of interest which is then due and payable to the
Lenders, and (b) second, pro rata according to the amount of principal which is
then due and payable to the Lenders, (ii) Competitive Bid Loans shall be
remitted by the Administrative Agent in like funds as received to each
applicable Lender and (iii) Swing Line Loans shall be remitted by the
Administrative Agent in like funds as received to the Swing Line Lender. Each
payment of the Fees payable to the Lenders shall be promptly transmitted by the
Administrative Agent in like funds as received to each Lender pro rata according
to such Lender's Commitment Amount or, if the Commitments shall have terminated
or been terminated, according to the outstanding principal amount of such
Lender's Revolving Credit Loans.
(b) If any payment hereunder or under the Loans shall be due and
payable on a day which is not a Domestic Business Day or Eurodollar Business
Day, as the case may be, the due date thereof (except as otherwise provided in
the definition of Eurodollar Interest Period or Competitive Interest Period)
shall be extended to the next Domestic Business Day or Eurodollar Business Day,
as the case may be, and (except with respect to payments in respect of the
Facility Fee and in respect of the Letter of Credit Participation Fee) interest
shall be payable at the applicable rate specified herein during such extension.
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3.3 Conversions; Other Matters
(a) The Borrower may elect at any time and from time to time to
Convert one or more Eurodollar Advances to an ABR Advance by giving the
Administrative Agent at least one Domestic Business Day's prior irrevocable
notice of such election, specifying the amount to be so Converted. In addition,
the Borrower may elect at any time and from time to time to Convert an ABR
Advance to any one or more new Eurodollar Advances or to Convert any one or more
existing Eurodollar Advances to any one or more new Eurodollar Advances by
giving the Administrative Agent at least two Eurodollar Business Days' prior
irrevocable notice, in the case of a Conversion to Eurodollar Advances, of such
election, specifying the amount to be so Converted and the initial Interest
Period relating thereto, provided that any Conversion of an ABR Advance to
Eurodollar Advances shall only be made on a Eurodollar Business Day. The
Administrative Agent shall promptly provide the Lenders with notice of each such
election. ABR Advances and Eurodollar Advances may be Converted pursuant to this
Section in whole or in part, provided that the amount to be Converted to each
Eurodollar Advance, when aggregated with any Eurodollar Advance to be made on
such date in accordance with Section 2.1 and having the same Interest Period as
such first Eurodollar Advance, shall equal no less than $10,000,000 or an
integral multiple of $1,000,000 in excess thereof.
(b) Notwithstanding anything in this Agreement to the contrary, upon
the occurrence and during the continuance of a Default or an Event of Default,
the Borrower shall have no right to elect to Convert any existing ABR Advance to
a new Eurodollar Advance or to Convert any existing Eurodollar Advance to a new
Eurodollar Advance. In such event, such ABR Advance shall be automatically
continued as an ABR Advance or such Eurodollar Advance shall be automatically
Converted to an ABR Advance on the last day of the Interest Period applicable to
such Eurodollar Advance. The foregoing shall not affect any other rights or
remedies that the Administrative Agent or any Lender may have under this
Agreement or any other Loan Document.
(c) Each Conversion shall be effected by each Lender by applying the
proceeds of each new ABR Advance or Eurodollar Advance, as the case may be, to
the existing Advance (or portion thereof) being Converted (it being understood
that such Conversion shall not constitute a borrowing for purposes of Sections
4, 5 or 6).
(d) Notwithstanding any other provision of any Loan Document:
(i) if the Borrower shall have failed to elect a Eurodollar
Advance under Section 2.3 or this Section 3.3, as the case may be, in
connection with any borrowing of new Revolving Credit Loans or expiration
of an Interest Period with respect to any existing Eurodollar Advance, the
amount of the Revolving Credit Loans subject to such borrowing or such
existing Eurodollar Advance shall thereafter be an ABR Advance until such
time, if any, as the Borrower shall elect a new Eurodollar Advance
pursuant to this Section 3.3,
(ii) the Borrower shall not be permitted to select a
Eurodollar Advance the Interest Period in respect of which ends later than
the Commitment Termination Date or such earlier date upon which all of the
Commitments shall have been voluntarily terminated by the Borrower in
accordance with Section 2.6, and
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(iii) the Borrower shall not be permitted to have more than 10
Eurodollar Advances and Competitive Bid Loans, in the aggregate,
outstanding at any one time, it being understood and agreed that each
borrowing of Eurodollar Advances or Competitive Bid Loans pursuant to a
single Borrowing Request or Competitive Bid Request, as the case may be,
shall constitute the making of one Eurodollar Advance or Competitive Bid
Loan for the purpose of calculating such limitation.
3.4 Interest Rates and Payment Dates
(a) Prior to Maturity. Except as otherwise provided in Sections
3.4(b) and 3.4(c), the Loans shall bear interest on the unpaid principal balance
thereof at the applicable interest rate or rates per annum set forth below:
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LOANS RATE
Revolving Credit Loans Alternate Base Rate applicable
constituting ABR Advances thereto plus the Applicable Margin.
Revolving Credit Loans Eurodollar Rate applicable
constituting Eurodollar thereto
Advances plus the Applicable Margin.
Competitive Bid Fixed rate of interest applicable
Loans thereto accepted by the Borrower
pursuant to Section 2.4(d).
Swing Line Loans Negotiated Rate applicable
thereto as provided in Section 2.2(a).
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(b) After Maturity, Late Payment Rate. After maturity, whether by
acceleration, notice of intention to prepay or otherwise, the outstanding
principal balance of the Loans shall bear interest at the Alternate Base Rate
plus 2% per annum until paid (whether before or after the entry of any judgment
thereon). Any payment of principal, interest or any Fees not paid on the date
when due and payable shall bear interest at the Alternate Base Rate plus 2% per
annum from the due date thereof until the date such payment is made (whether
before or after the entry of any judgment thereon).
(c) Highest Lawful Rate. Notwithstanding anything to the contrary
contained in this Agreement, at no time shall the interest rate payable to any
Lender on any of its Loans, together with the Fees and all other amounts payable
hereunder to such Lender to the extent the same constitute or are deemed to
constitute interest, exceed the Highest Lawful Rate. If in respect of any period
during the term of this Agreement, any amount paid to any Lender hereunder, to
the extent the same shall (but for the provisions of this Section 3.4)
constitute or be deemed to constitute interest, would exceed the maximum amount
of interest permitted by the Highest Lawful Rate during such period (such amount
being hereinafter referred to as an "Unqualified Amount"), then
(i) such Unqualified
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Amount shall be applied or shall be deemed to have been applied as a prepayment
of the Loans of such Lender, and (ii) if, in any subsequent period during the
term of this Agreement, all amounts payable hereunder to such Lender in respect
of such period which constitute or shall be deemed to constitute interest shall
be less than the maximum amount of interest permitted by the Highest Lawful Rate
during such period, then the Borrower shall pay to such Lender in respect of
such period an amount (each a "Compensatory Interest Payment") equal to the
lesser of (x) a sum which, when added to all such amounts, would equal the
maximum amount of interest permitted by the Highest Lawful Rate during such
period, and (y) an amount equal to the aggregate sum of all Unqualified Amounts
less all other Compensatory Interest Payments.
(d) General. Interest shall be payable in arrears on each Interest
Payment Date, on the Commitment Termination Date and, to the extent provided in
Section 2.7(b), upon each prepayment of the Loans. Any change in the interest
rate on the Loans resulting from an increase or a decrease in the Alternate Base
Rate or any reserve requirement shall become effective as of the opening of
business on the day on which such change shall become effective. The
Administrative Agent shall, as soon as practicable, notify the Borrower and the
Lenders of the effective date and the amount of each change in the BNY Rate, but
any failure to so notify shall not in any manner affect the obligation of the
Borrower to pay interest on the Loans in the amounts and on the dates set forth
herein. Each determination by the Administrative Agent of the Alternate Base
Rate, the Eurodollar Rate and the Competitive Rate pursuant to this Agreement
shall be conclusive and binding on the Borrower absent manifest error. The
Borrower acknowledges that to the extent interest payable on the Loans is based
on the Alternate Base Rate, such rate is only one of the bases for computing
interest on loans made by the Lenders, and by basing interest payable on ABR
Advances on the Alternate Base Rate, the Lenders have not committed to charge,
and the Borrower has not in any way bargained for, interest based on a lower or
the lowest rate at which the Lenders may now or in the future make extensions of
credit to other Persons. All interest (other than interest calculated with
reference to the BNY Rate) shall be calculated on the basis of a 360-day year
for the actual number of days elapsed, and all interest determined with
reference to the BNY Rate shall be calculated on the basis of a 365/366-day year
for the actual number of days elapsed.
3.5 Indemnification for Loss
Notwithstanding anything contained herein to the contrary, if: (i)
the Borrower shall fail to borrow a Eurodollar Advance or if the Borrower shall
fail to Convert a Eurodollar Advance after it shall have given notice to do so
in which it shall have requested a Eurodollar Advance pursuant to Section 2.3 or
3.3, as the case may be, (ii) the Borrower shall fail to borrow a Competitive
Bid Loan after it shall have accepted any offer with respect thereto in
accordance with Section 2.4 or a Swing Line Loan after it shall have agreed to a
Negotiated Rate with respect thereto in accordance with Section 2.2(a), (iii) a
Eurodollar Advance, Competitive Bid Loan or Swing Line Loan shall be terminated
for any reason prior to the last day of the Interest Period applicable thereto,
(iv) any repayment or prepayment of the principal amount of a Eurodollar
Advance, Competitive Bid Loan or Swing Line Loan is made for any reason on a
date which is prior to the last day of the Interest Period applicable thereto,
or (v) the Borrower shall have revoked a notice of prepayment or notice of
termination of the Commitments, the Swing Line Commitment and the Letter of
Credit Commitments that was conditioned upon the effectiveness of other credit
facilities pursuant to Section 2.6 or 2.7, the Borrower agrees
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to indemnify each Lender (or the Swing Line Lender, as applicable) against, and
to pay on demand directly to such Lender the amount (calculated by such Lender
using any method chosen by such Lender which is customarily used by such Lender
for such purpose) equal to any loss or expense suffered by such Lender as a
result of such failure to borrow or Convert, or such termination, repayment,
prepayment or revocation, including any loss, cost or expense suffered by such
Lender in liquidating or employing deposits acquired to fund or maintain the
funding of such Eurodollar Advance, Competitive Bid Loan or Swing Line Loan, as
the case may be, or redeploying funds prepaid or repaid, in amounts which
correspond to such Eurodollar Advance, Competitive Bid Loan or Swing Line Loan,
as the case may be, and any reasonable internal processing charge customarily
charged by such Lender in connection therewith.
3.6 Reimbursement for Costs, Etc.
If at any time or from time to time there shall occur a Regulatory
Change and the Issuer or any Lender shall have reasonably determined that such
Regulatory Change (i) shall have had or will thereafter have the effect of
reducing (A) the rate of return on the Issuer's or such Lender's capital or the
capital of any Person directly or indirectly owning or controlling the Issuer or
such Lender (each a "Control Person"), or (B) the asset value (for capital
purposes) to the Issuer or such Lender or such Control Person, as applicable, of
the Reimbursement Obligations, or any participation therein, or the Loans, or
any participation therein, in any case to a level below that which the Issuer or
such Lender or such Control Person could have achieved or would thereafter be
able to achieve but for such Regulatory Change (after taking into account the
Issuer's, such Lender's or such Control Person's policies regarding capital),
(ii) will impose, modify or deem applicable any reserve, asset, special deposit
or special assessment requirements on deposits obtained in the interbank
eurodollar market in connection with the Loan Documents (excluding, with respect
to any Eurodollar Advance, any such requirement which is included in the
determination of the rate applicable thereto), (iii) will subject the Issuer, or
such Lender or such Control Person, as applicable, to any tax (documentary,
stamp or otherwise) with respect to this Agreement, any Note, or any
Reimbursement Agreement, or (iv) will change the basis of taxation of payments
to the Issuer or such Lender or such Control Person, as applicable, of
principal, interest or fees payable under the Loan Documents (except, in the
case of clauses (iii) and (iv) above, for any tax or changes in the rate of tax
on the Issuer's, or such Lender's or such Control Person's net income) then, in
each such case, within ten days after demand by the Issuer or such Lender, as
applicable, the Borrower shall pay to the Issuer, such Lender or such Control
Person, as the case may be, such additional amount or amounts as shall be
sufficient to compensate the Issuer, such Lender or such Control Person, as the
case may be, for any such reduction, reserve or other requirement, tax, loss,
cost or expense (excluding general administrative and overhead costs)
(collectively, "Costs") attributable to the Issuer's, such Lender's or such
Control Person's compliance during the term hereof with such Regulatory Change.
The Issuer and each Lender may make multiple requests for compensation under
this Section.
Notwithstanding the foregoing, the Borrower will not be required to
compensate any Lender for any Costs under this Section 3.6 arising prior to 45
days preceding the date of demand, unless the applicable Regulatory Change
giving rise to such Costs is imposed retroactively. In the case of
retroactivity, such notice shall be provided to the Borrower not later than 45
days from the date that such Lender learned of such
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Regulatory Change. The Borrower's obligation to compensate such Lender shall be
contingent upon the provision of such timely notice (but any failure by such
Lender to provide such timely notice shall not affect the Borrower's obligations
with respect to (i) Costs incurred from the date as of which such Regulatory
Change became effective to the date that is 45 days after the date such Lender
reasonably should have learned of such Regulatory Change and (ii) Costs incurred
following the provision of such notice).
3.7 Illegality of Funding
Notwithstanding any other provision hereof, if any Lender shall
reasonably determine that any law, regulation, treaty or directive, or any
change therein or in the interpretation or application thereof, shall make it
unlawful for such Lender to make or maintain any Eurodollar Advance as
contemplated by this Agreement, such Lender shall promptly notify the Borrower
and the Administrative Agent thereof, and (a) the commitment of such Lender to
make such Eurodollar Advances or Convert ABR Advances to such Eurodollar
Advances shall forthwith be suspended, (b) such Lender shall fund its portion of
each requested Eurodollar Advance as an ABR Advance and (c) such Lender's Loans
then outstanding as such Eurodollar Advances, if any, shall be Converted
automatically to an ABR Advance on the last day of the then current Interest
Period applicable thereto or at such earlier time as may be required. If the
commitment of any Lender with respect to Eurodollar Advances is suspended
pursuant to this Section and such Lender shall have obtained actual knowledge
that it is once again legal for such Lender to make or maintain Eurodollar
Advances, such Lender shall promptly notify the Administrative Agent and the
Borrower thereof and, upon receipt of such notice by each of the Administrative
Agent and the Borrower, such Lender's commitment to make or maintain Eurodollar
Advances shall be reinstated. If the commitment of any Lender with respect to
Eurodollar Advances is suspended pursuant to this Section, such suspension shall
not otherwise affect such Lender's Commitment.
3.8 Option to Fund; Substituted Interest Rate
(a) Each Lender has indicated that, if the Borrower requests a Swing
Line Loan, a Eurodollar Advance or a Competitive Bid Loan, such Lender may wish
to purchase one or more deposits in order to fund or maintain its funding of its
Commitment Percentage of such Eurodollar Advance or its Swing Line Loan or
Competitive Bid Loan during the Interest Period with respect thereto; it being
understood that the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest to be paid in
respect of such Swing Line Loan, Eurodollar Advance or Competitive Bid Loan and
any amounts owing under Sections 3.5 and 3.6. The Swing Line Lender and each
Lender shall be entitled to fund and maintain its funding of all or any part of
each Swing Line Loan, Eurodollar Advance and Competitive Bid Loan in any manner
it sees fit, but all such determinations hereunder shall be made as if such
Lender had actually funded and maintained its Commitment Percentage of each
Eurodollar Advance or its Swing Line Loan or Competitive Bid Loan, as the case
may be, during the applicable Interest Period through the purchase of deposits
in an amount equal to the amount of its Commitment Percentage of such Eurodollar
Advance or the amount of such Swing Line Loan or Competitive Bid Loan, as the
case may be, and having a maturity corresponding to such Interest Period. Each
Lender may fund its Loans from or for the account of any branch or office of
such Lender as such Lender may choose from time to time, subject to Section
3.10.
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(b) In the event that (i) the Administrative Agent shall have
determined in good faith (which determination shall be conclusive and binding
upon the Borrower) that by reason of circumstances affecting the interbank
eurodollar market either adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate applicable pursuant to Section 2.3 or Section
3.3, or (ii) the Required Lenders shall have notified the Administrative Agent
that they have in good faith determined (which determination shall be conclusive
and binding on the Borrower) that the applicable Eurodollar Rate will not
adequately and fairly reflect the cost to such Lenders of maintaining or funding
loans bearing interest based on such Eurodollar Rate with respect to any portion
of the Loans that the Borrower has requested be made as Eurodollar Advances or
any Eurodollar Advance that will result from the requested conversion of any
portion of the Loans into Eurodollar Advances (each, an "Affected Advance"), the
Administrative Agent shall promptly notify the Borrower and the Lenders (by
telephone or otherwise, to be promptly confirmed in writing) of such
determination on or, to the extent practicable, prior to the requested Borrowing
Date or conversion date for such Affected Advances. If the Administrative Agent
shall give such notice, (A) any Affected Advances shall be made as ABR Advances
(or, subject to the terms and conditions hereof, Competitive Bid Loans), (B) the
Loans (or any portion thereof) that were to have been Converted to Affected
Advances shall be Converted to or continued as ABR Advances (or, subject to the
terms and conditions hereof, Competitive Bid Loans), and (C) any outstanding
Affected Advances shall be Converted, on the last day of the then current
Interest Period with respect thereto, to ABR Advances (or, subject to the terms
and conditions hereof, Competitive Bid Loans). Until any notice under clauses
(i) or (ii), as the case may be, of this Section 3.8(b) has been withdrawn by
the Administrative Agent (by notice to the Borrower) promptly upon either (x)
the Administrative Agent having determined that such circumstances affecting the
relevant market no longer exist and that adequate and reasonable means do exist
for determining the Eurodollar Rate pursuant to Section 2.3 or Section 3.3, or
(y) the Administrative Agent having been notified by such Required Lenders that
circumstances no longer render the Loans (or any portion thereof) Affected
Advances, no further Eurodollar Advances shall be required to be made by the
Lenders nor shall the Borrower have the right to Convert all or any portion of
the Loans to Eurodollar Advances.
3.9 Certificates of Payment and Reimbursement
Each of the Issuer and each Lender agrees, in connection with any
request by it for payment or reimbursement pursuant to Section 3.5 or 3.6, to
provide the Borrower with a certificate, signed by an officer of the Issuer or
such Lender, as the case may be, setting forth a description in reasonable
detail of any such payment or reimbursement. Each determination by the Issuer
and each Lender of such payment or reimbursement shall be conclusive absent
manifest error.
3.10 Taxes; Net Payments
(a) All payments made by the Borrower under the Loan Documents shall
be made free and clear of, and without reduction for or on account of, any taxes
required by law to be withheld from any amounts payable under the Loan
Documents. In the event that the Borrower is prohibited by law from making such
payments free of deductions or withholdings, then the Borrower shall pay such
additional amounts to the Administrative Agent, for the benefit of the Issuer
and the Lenders, as may be necessary
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in order that the actual amounts received by the Issuer and the Lenders in
respect of interest and any other amounts payable under the Loan Documents after
deduction or withholding (and after payment of any additional taxes or other
charges due as a consequence of the payment of such additional amounts) shall
equal the amount that would have been received if such deduction or withholding
were not required. In the event that any such deduction or withholding can be
reduced or nullified as a result of the application of any relevant double
taxation convention, the Lenders, the Issuer and the Administrative Agent will,
at the expense of the Borrower, cooperate with the Borrower in making
application to the relevant taxing authorities seeking to obtain such reduction
or nullification, provided that the Lenders, the Issuer and the Administrative
Agent shall have no obligation to (i) engage in any litigation, hearing or
proceeding with respect thereto or (ii) disclose any tax return or other
confidential information. If the Borrower shall make any payment under this
Section or shall make any deduction or withholding from amounts paid under any
Loan Document, the Borrower shall forthwith forward to the Administrative Agent
original or certified copies of official receipts or other evidence acceptable
to the Administrative Agent establishing each such payment, deduction or
withholding, as the case may be, and the Administrative Agent in turn shall
distribute copies thereof to the Issuer and each Lender. If any payment to the
Issuer or any Lender under any Loan Document is or becomes subject to any
withholding, the Issuer or such Lender, as the case may be, shall (unless
otherwise required by a Governmental Authority or as a result of any law, rule,
regulation, order or similar directive applicable to the Issuer or such Lender,
as the case may be) designate a different office or branch to which such payment
is to be made from that initially selected thereby, if such designation would
avoid such withholding and would not be otherwise disadvantageous to the Issuer
or such Lender, as the case may be, in any respect. In the event that the Issuer
or any Lender determines that it received a refund or credit for taxes paid by
the Borrower under this Section, the Issuer or such Lender, as the case may be,
shall promptly notify the Administrative Agent and the Borrower of such fact and
shall remit to the Borrower the amount of such refund or credit applicable to
the payments made by the Borrower in respect of the Issuer or such Lender, as
the case may be, under this Section.
(b) So long as it is lawfully able to do so, each Lender not
incorporated under the laws of the United States or any State thereof shall
deliver to the Borrower such certificates, documents, or other evidence as the
Borrower may reasonably require from time to time as are necessary to establish
that such Lender is not subject to withholding under Section 1441, 1442 or 3406
of the Internal Revenue Code or as may be necessary to establish, under any law
imposing upon the Borrower, hereafter, an obligation to withhold any portion of
the payments made by the Borrower under the Loan Documents, that payments to the
Administrative Agent on behalf of such Lender are not subject to withholding.
Notwithstanding any provision herein to the contrary, the Borrower shall have no
obligation to pay to the Issuer, the Swing Line Lender or any Lender any amount
which the Borrower is liable to withhold due to the failure of the Issuer, the
Swing Line Lender or such Lender, as the case may be, to file any statement of
exemption required by the Internal Revenue Code.
3.11 Facility Fee
The Borrower agrees to pay to the Administrative Agent for the pro
rata account of each Lender a fee (the "Facility Fee") during the period
commencing on the Effective Date and ending on the Expiration Date, payable
quarterly in arrears on the last
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day of each March, June, September and December of each year, commencing on the
last day of the calendar quarter in which the Effective Date shall have
occurred, and on the Expiration Date, at a rate per annum equal to the
Applicable Margin of (a) prior to the Commitment Termination Date or such
earlier date upon which all of the Commitments shall have been voluntarily
terminated by the Borrower in accordance with Section 2.6, the Commitment Amount
of such Lender (whether used or unused), and (b) thereafter, the sum of (i) the
outstanding principal balance of all Revolving Credit Loans of such Lender, (ii)
such Lender's Swing Line Exposure and (iii) such Lender's Letter of Credit
Exposure. Notwithstanding anything to the contrary contained in this Section, on
and after the Commitment Termination Date, the Facility Fee shall be payable
upon demand. In addition, upon each reduction of the Aggregate Commitment
Amount, the Borrower shall pay the Facility Fee accrued on the amount of such
reduction through the date of such reduction. The Facility Fee shall be computed
on the basis of a 360-day year for the actual number of days elapsed.
3.12 Letter of Credit Participation Fee
The Borrower agrees to pay to the Administrative Agent for the pro
rata account of each Lender a fee (the "Letter of Credit Participation Fee")
with respect to the Letters of Credit during the period commencing on the
Effective Date and ending on the Commitment Termination Date or, if later, the
date when the Letter of Credit Exposure of all Lenders is $0, payable quarterly
in arrears on the last day of each March, June, September and December of each
year, commencing on the last day of the calendar quarter in which the Effective
Date shall have occurred, and on the last date of such period, at a rate per
annum equal to the Applicable Margin of the average daily aggregate amount which
may be drawn under the Letters of Credit during such period (whether or not the
conditions for drawing thereunder have or may be satisfied) multiplied by such
Lender's Commitment Percentage. The Letter of Credit Participation Fee shall be
computed on the basis of a 360-day year for the actual number of days elapsed.
3.13 Replacement of Lender
If the Borrower is obligated to pay to any Lender any amount under
Section 3.6 or 3.10, the Borrower shall have the right within 90 days
thereafter, in accordance with the requirements of Section 11.7(c), if no
Default or Event of Default shall exist, to replace such Lender (the "Replaced
Lender") with one or more other assignees (each a "Replacement Lender"),
reasonably acceptable to the Swing Line Lender and the Issuer, provided that (i)
at the time of any replacement pursuant to this Section, the Replacement Lender
shall enter into one or more Assignment and Acceptance Agreements pursuant to
Section 11.7(c) (with the Assignment Fee payable pursuant to said Section
11.7(c) to be paid by the Replacement Lender) pursuant to which the Replacement
Lender shall acquire the Commitment, the outstanding Loans, the Swing Line
Exposure and the Letter of Credit Exposure of the Replaced Lender and, in
connection therewith, shall pay the following: (a) to the Replaced Lender, an
amount equal to the sum of (A) an amount equal to the principal of, and all
accrued interest on, all outstanding Loans and Swing Line Participation Amounts
of the Replaced Lender, (B) an amount equal to all drawings on all Letters of
Credit that have been funded by (and not reimbursed to) such Replaced Lender,
together with all then unpaid interest with respect thereto at such time, and
(C) an amount equal to all accrued, but unpaid, fees owing to the Replaced
Lender, (b) to the Issuer, an amount equal to such Replaced Lender's Commitment
Percentage of all drawings (which at such time remain
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unpaid drawings) to the extent such amount was not funded by such Replaced
Lender, (c) to the Swing Line Lender, an amount equal to such Replaced Lender's
Commitment Percentage of any Mandatory Borrowing to the extent such amount was
not funded by such Replaced Lender, and (d) to the Administrative Agent an
amount equal to all amounts owed by such Replaced Lender to the Administrative
Agent under this Agreement, including, without limitation, an amount equal to
the principal of, and all accrued interest on, all outstanding Loans of the
Replaced Lender, a corresponding amount of which was made available by the
Administrative Agent to the Borrower pursuant to Section 3.1 and which has not
been repaid to the Administrative Agent by such Replaced Lender or the Borrower,
and (ii) all obligations of the Borrower owing to the Replaced Lender (other
than those specifically described in clause (i) above in respect of which the
assignment purchase price has been, or is concurrently being, paid) shall be
paid in full to such Replaced Lender concurrently with such replacement. Upon
the execution of the respective Assignment and Acceptance Agreements and the
payment of amounts referred to in clauses (i) and (ii) of this Section 3.13, the
Replacement Lender shall become a Lender hereunder and the Replaced Lender shall
cease to constitute a Lender hereunder, except with respect to indemnification
provisions under this Agreement that are intended to survive the termination of
the Commitments.
4. REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent, the Lenders and the Issuer to
enter into this Agreement, the Lenders to make the Loans and the Issuer to issue
Letters of Credit, the Borrower hereby makes the following representations and
warranties to the Administrative Agent, the Lenders and the Issuer:
4.1 Existence and Power
Each of the Borrower and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation (except, in the case of the Subsidiaries, where the
failure to be in such good standing could not reasonably be expected to have a
Material Adverse effect), has all requisite corporate power and authority to own
its Property and to carry on its business as now conducted, and is qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real Property or in which the nature of
its business requires it to be so qualified (except those jurisdictions where
the failure to be so qualified or to be in good standing could not reasonably be
expected to have a Material Adverse effect).
4.2 Authority
The Borrower has full corporate power and authority to enter into,
execute, deliver and perform the terms of the Loan Documents and to consummate
the CVS/Revco Merger in accordance with the CVS/Revco Merger Documents, all of
which have been duly authorized by all proper and necessary corporate action and
are not in contravention of any applicable law or the terms of its Certificate
of Incorporation and By-Laws. No consent or approval of, or other action by,
shareholders of the Borrower, any Governmental Authority, or any other Person
(which has not already been obtained) is required to authorize in respect of the
Borrower, or is required in connection with the
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execution, delivery, and performance by the Borrower of the Loan Documents or in
connection with the consummation of the CVS/Revco Merger, or is required as a
condition to the enforceability of the Loan Documents against the Borrower or as
a condition to the CVS/Revco Merger.
4.3 Binding Agreement
The Loan Documents and the CVS/Revco Merger Documents constitute the
valid and legally binding obligations of the Borrower, enforceable in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by equitable
principles relating to the availability of specific performance as a remedy.
4.4 Litigation
Except as set forth on Schedule 4.4, there are no actions, suits,
arbitration proceedings or claims (whether purportedly on behalf of the
Borrower, any Subsidiary or otherwise) pending or, to the knowledge of the
Borrower, threatened against the Borrower or any Subsidiary or any of their
respective Properties, or maintained by the Borrower or any Subsidiary, at law
or in equity, before any Governmental Authority which could reasonably be
expected to have a Material Adverse effect. There are no proceedings pending or,
to the knowledge of the Borrower, threatened against the Borrower or any
Subsidiary (a) which call into question the validity or enforceability of any
Loan Document, or otherwise seek to invalidate, any Loan Document or invalidate
or prevent the consummation of the CVS/Revco Merger, or (b) which might,
individually or in the aggregate, materially and adversely affect any of the
transactions contemplated by any Loan Document or materially and adversely
affect the CVS/Revco Merger.
4.5 No Conflicting Agreements
(a) Neither the Borrower nor any Subsidiary is in default under any
agreement to which it is a party or by which it or any of its Property is bound
the effect of which could reasonably be expected to have a Material Adverse
effect. No notice to, or filing with, any Governmental Authority is required for
the due execution, delivery and performance by the Borrower of the Loan
Documents or to effect the CVS/Revco Merger, except for notices and filings
required in connection with the CVS/Revco Merger which have been given and made.
(b) No provision of any existing material mortgage, material
indenture, material contract or material agreement or of any existing statute,
rule, regulation, judgment, decree or order binding on the Borrower or any
Subsidiary or affecting the Property of the Borrower or any Subsidiary conflicts
with, or requires any consent which has not already been obtained under, or
would in any way prevent the execution, delivery or performance by the Borrower
of the terms of, any Loan Document or the CVS/Revco Merger. The execution,
delivery or performance by the Borrower of the terms of each Loan Document and
the consummation of the CVS/Revco Merger will not constitute a default under, or
result in the creation or imposition of, or obligation to create, any Lien upon
the Property of the Borrower or any Subsidiary pursuant to the terms of any such
mortgage, indenture, contract or agreement.
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4.6 Taxes
The Borrower and each Subsidiary has filed or caused to be filed all
tax returns, and has paid, or has made adequate provision for the payment of,
all taxes shown to be due and payable on said returns or in any assessments made
against them, the failure of which to file or pay could reasonably be expected
to have a Material Adverse effect, and no tax Liens (other than Liens permitted
under Section 8.2) have been filed against the Borrower or any Subsidiary and no
claims are being asserted with respect to such taxes which are required by GAAP
to be reflected in the Financial Statements and are not so reflected, except for
taxes which have been assessed but which are not yet due and payable. The
charges, accruals and reserves on the books of the Borrower and each Subsidiary
with respect to all federal, state, local and other taxes are considered by the
management of the Borrower to be adequate, and the Borrower knows of no unpaid
assessment which (a) could reasonably be expected to have a Material Adverse
effect, or (b) is or might be due and payable against it or any Subsidiary or
any Property of the Borrower or any Subsidiary, except such thereof as are being
contested in good faith and by appropriate proceedings diligently conducted, and
for which adequate reserves have been set aside in accordance with GAAP or which
have been assessed but are not yet due and payable.
4.7 Compliance with Applicable Laws; Filings
Neither the Borrower nor any Subsidiary is in default with respect
to any judgment, order, writ, injunction, decree or decision of any Governmental
Authority which default could reasonably be expected to have a Material Adverse
effect. The Borrower and each Subsidiary is complying with all applicable
statutes, rules and regulations of all Governmental Authorities, a violation of
which could reasonably be expected to have a Material Adverse effect. The
Borrower and each Subsidiary has filed or caused to be filed with all
Governmental Authorities all reports, applications, documents, instruments and
information required to be filed pursuant to all applicable laws, rules,
regulations and requests which, if not so filed, could reasonably be expected to
have a Material Adverse effect.
4.8 Governmental Regulations
Neither the Borrower nor any Subsidiary nor any corporation
controlling the Borrower or any Subsidiary or under common control with the
Borrower or any Subsidiary is subject to regulation under the Investment Company
Act of 1940, as amended, or is subject to any statute or regulation which
regulates the incurrence of Indebtedness.
4.9 Federal Reserve Regulations; Use of Proceeds
The Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended. No part of the proceeds of
the Loans or the Letters of Credit has been or will be used, directly or
indirectly, for a purpose which violates any law, rule or regulation of any
Governmental Authority, including, without limitation, the provisions of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System, as amended. Anything in this Agreement to the contrary notwithstanding,
neither
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the Issuer nor any Lender shall be obligated to extend credit to or on behalf of
the Borrower in violation of any limitation or prohibition provided by any
applicable law, regulation or statute, including said Regulation U. Following
application of the proceeds of each Loan and the issuance of each Letter of
Credit, not more than 25% (or such greater or lesser percentage as is provided
in the exclusions from the definition of "Indirectly Secured" contained in said
Regulation G and Regulation U as in effect at the time of the making of such
Loan or issuance of such Letter of Credit) of the value of the assets of the
Borrower and the Subsidiaries on a Consolidated basis that are subject to
Section 8.2 will be Margin Stock.
4.10 No Misrepresentation
No representation or warranty contained in any Loan Document and
no certificate or written report furnished by the Borrower to the Administrative
Agent or any Lender contains or will contain, as of its date, a misstatement of
material fact, or omits or will omit to state, as of its date, a material fact
required to be stated in order to make the statements therein contained not
misleading in the light of the circumstances under which made.
4.11 Plans
Each Employee Benefit Plan of the Borrower, each Subsidiary and each
ERISA Affiliate is in compliance with ERISA and the Internal Revenue Code, where
applicable, except where the failure to so comply would not be material. The
Borrower, each Subsidiary and each ERISA Affiliate have complied with the
material requirements of Section 515 of ERISA with respect to each Pension Plan
which is a Multiemployer Plan, except where the failure to so comply would not
be material. The Borrower, each Subsidiary and each ERISA Affiliate has, as of
the date hereof, made all contributions or payments to or under each such
Pension Plan required by law or the terms of such Pension Plan or any contract
or agreement. No liability to the PBGC has been, or is reasonably expected by
the Borrower, any Subsidiary or any ERISA Affiliate to be, incurred by the
Borrower, any Subsidiary or any ERISA Affiliate. Liability, as referred to in
this Section 4.11, includes any joint and several liability, but excludes any
liability for premiums under Section 4007 of ERISA. Each Employee Benefit Plan
which is a group health plan within the meaning of Section 5000(b)(1) of the
Internal Revenue Code is in material compliance with the continuation of health
care coverage requirements of Section 4980B of the Internal Revenue Code.
4.12 Environmental Matters
Neither the Borrower nor any Subsidiary (a) has received written
notice or otherwise learned of any claim, demand, action, event, condition,
report or investigation indicating or concerning any potential or actual
liability which individually or in the aggregate could reasonably be expected to
have a Material Adverse effect, arising in connection with (i) any
non-compliance with or violation of the requirements of any applicable federal,
state or local environmental health or safety statute or regulation, or (ii) the
release or threatened release of any toxic or hazardous waste, substance or
constituent, or other substance into the environment, (b) to the best knowledge
of the Borrower, has any threatened or actual liability in connection with the
release or threatened release of any toxic or hazardous waste, substance or
constituent, or other substance into the environment which individually or in
the aggregate could reasonably be expected to have a Material Adverse effect,
(c) has received notice of any federal or state investigation evaluating whether
any remedial action is needed to respond to a release or threatened release of
any
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toxic or hazardous waste, substance or constituent or other substance into the
environment for which the Borrower or any Subsidiary is or would be liable,
which liability would reasonably be expected to have a Material Adverse effect,
or (d) has received notice that the Borrower or any Subsidiary is or may be
liable to any Person under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Section 9601 et seq., or
any analogous state law, which liability would reasonably be expected to have a
Material Adverse effect. The Borrower and each Subsidiary is in compliance with
the financial responsibility requirements of federal and state environmental
laws to the extent applicable, including those contained in 40 C.F.R., parts 264
and 265, subpart H, and any analogous state law, except in those cases in which
the failure so to comply would not reasonably be expected to have a Material
Adverse effect.
4.13 Financial Statements
The Borrower has heretofore delivered to the Lenders through the
Administrative Agent copies of (i) the audited Consolidated Balance Sheet of the
Borrower and its Subsidiaries as of December 31, 1996, and the related
Consolidated Statement of Income and Retained Earnings, and Consolidated
Statement of Cash Flows, for the fiscal year then ended (the "Borrower Audited
Financial Statements"), (ii) the audited consolidated Balance Sheet of Revco and
its subsidiaries as of December 31, 1996, and the related consolidated
Statements of Income and Retained Earnings, and consolidated Statement of Cash
Flows, for the fiscal year then ended (the "Revco Audited Financial Statements")
and (iii) the unaudited pro-forma (after giving effect to the CVS/Revco Merger)
Consolidated Balance Sheet of the Borrower as of the proposed CVS/Revco Merger
Date, and the related pro-forma (after giving effect to the CVS/Revco Merger)
Consolidated Statement of Income and Retained Earnings for the period from
January 1, 1997 to the proposed CVS/Revco Merger Date (the "Borrower Pro Forma
Financial Statements") and, together with the Borrower Audited Statements and
the Revco Audited Statements, including any related notes and schedules, the
"Financial Statements"). The Borrower Audited Financial Statements fairly
present the Consolidated financial condition and results of the operations of
the Borrower and the Subsidiaries, and the Borrower Pro Forma Financial
Statements fairly present, on a pro forma basis after giving effect to the
consummation of the CVS/Revco Merger, the Consolidated financial condition and
results of the operations of the Borrower and the Subsidiaries, in each case as
of the dates and for the periods indicated therein and, except as noted therein,
have been prepared in conformity with GAAP as then in effect. Neither the
Borrower nor any of the Subsidiaries, with respect to the Borrower Audited
Financial Statements, and neither the Borrower nor any of the Subsidiaries
(after giving effect to the CVS/Revco Merger), with respect to the Borrower Pro
Forma Financial Statements, has any obligation or liability of any kind (whether
fixed, accrued, contingent, unmatured or otherwise) which, in accordance with
GAAP as then in effect, should have been disclosed in the Financial Statements
and was not. During the period from December 31, 1996 to and including the
Effective Date there has been no Material Adverse change, including as a result
of any change in law, in the consolidated financial condition, operations,
business or Property of the Borrower and the Subsidiaries taken as a whole
(after giving effect to the CVS/Revco Merger).
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5. CONDITIONS OF LENDING - FIRST LOANS AND LETTERS OF CREDIT ON THE FIRST
BORROWING DATE
In addition to the requirements set forth in Section 6, the obligation of
each Lender on the first Borrowing Date to make one or more Revolving Credit
Loans, the Swing Line Lender to make one or more Swing Line Loans, the Issuer to
issue one or more Letters of Credit and any Lender to make a Competitive Bid
Loan are subject to the fulfillment of the following conditions precedent prior
to or simultaneously with the Effective Date:
5.1 Evidence of Corporate Action
The Administrative Agent shall have received a certificate, dated
the Effective Date, of the Secretary or an Assistant Secretary of the Borrower
(i) attaching a true and complete copy of the resolutions of its Board of
Directors and of all documents evidencing all other necessary corporate action
(in form and substance reasonably satisfactory to the Administrative Agent)
taken by the Borrower to authorize the Loan Documents, the CVS/Revco Merger and
the transactions contemplated thereby, (ii) attaching a true and complete copy
of its Certificate of Incorporation and By-Laws, (iii) setting forth the
incumbency of the officer or officers of the Borrower who may sign the Loan
Documents and any other certificates, requests, notices or other documents now
or in the future required thereunder, including therein a signature specimen of
such officers, and (iv) attaching a certificate of good standing of the
Secretary of State of the State of Delaware.
5.2 Notes
The Borrower shall have delivered to the Administrative Agent (for
delivery to the Lenders) the Notes, executed by the Borrower.
5.3 Opinion of Special Counsel
The Administrative Agent shall have received from Special Counsel an
opinion, dated the Effective Date, and in the form of Exhibit E.
5.4 Opinion of Counsel to the Borrower
The Administrative Agent shall have received an opinion of Davis
Polk & Wardwell, special counsel to the Borrower, and Zenon Lankowsky, counsel
to the Borrower, dated the Effective Date, and in the form of Exhibit D.
5.5 CVS/Revco Merger
The CVS/Revco Merger shall have been consummated substantially in
accordance with the CVS/Revco Merger Documents, with no amendment or waiver of
any term or condition thereto which would have a Material Adverse effect with
respect to the Borrower and the Subsidiaries taken as a whole (after giving
effect to the CVS/Revco Merger) since December 31, 1996 or which would
materially and adversely affect the interest of the Administrative Agent or the
Lenders under the Loan Documents and in connection therewith: the Administrative
Agent shall have received a certificate from the Treasurer of the Borrower
stating that (i) the CVS/Revco Merger has been consummated
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substantially in accordance with the CVS/Revco Merger Documents, with no
amendment or waiver of any term or condition thereto which would have a Material
Adverse effect with respect to the Borrower and the Subsidiaries taken as a
whole (after giving effect to the CVS/Revco Merger) since December 31, 1996 or
which would materially and adversely affect the interest of the Administrative
Agent or the Lenders under the Loan Documents, (ii) the CVS/Revco Merger has
become effective, (iii) all representations and warranties contained in this
Agreement shall be true and correct and no Default or Event of Default shall
exist, in each case immediately before and after giving effect to the
consummation of the CVS/Revco Merger, and attaching a true and complete copy of
the CVS/Revco Merger Documents, and (iv) immediately before and after giving
effect to the consummation of the CVS/Revco Merger, the Borrower is Solvent.
5.6 Existing Credit Agreements
All commitments to lend under the Existing Credit Agreements shall
have been terminated, all letters of credit issued thereunder (other than
letters of credit issued under the Revco Existing Credit Agreement) shall have
been cancelled and all loans, interest, fees and other amounts owing thereunder
shall have been paid in full. In order to facilitate the satisfaction of the
condition set forth in this Section 5.6, each Lender hereunder which is a party
to the Existing CVS Credit Agreement waives the requirement in Section 2.6
thereof that a notice terminating the commitments of the lenders thereunder must
be given by the Borrower at least three Domestic Business Days prior to such
termination, and agrees that the termination of the commitments thereunder shall
be contingent upon, and effective upon, the occurrence of the Effective Date
hereunder, provided that, if for any reason such termination shall not occur on
the date proposed by the Borrower as the Effective Date hereunder, the Borrower
shall indemnify the Lenders in accordance with Section 3.5 thereof.
6. CONDITIONS OF LENDING - ALL LOANS AND LETTERS OF CREDIT
The obligation of each Lender on any Borrowing Date to make each Revolving
Credit Loan (other than a Revolving Credit Loan constituting a Mandatory
Borrowing), the Swing Line Lender to make each Swing Line Loan, the Issuer to
issue each Letter of Credit and any Lender to make a Competitive Bid Loan are
subject to the fulfillment of the following conditions precedent:
6.1 Compliance
On each Borrowing Date, and after giving effect to the Loans to be
made or the Letters of Credit to be issued on such Borrowing Date, (a) there
shall exist no Default or Event of Default, and (b) the representations and
warranties contained in this Agreement shall be true and correct with the same
effect as though such representations and warranties had been made on such
Borrowing Date, except those which are expressly specified to be made as of an
earlier date.
6.2 Requests
The Administrative Agent shall have received either or both, as
applicable, of a Borrowing Request or a Letter of Credit Request from the
Borrower.
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6.3 Loan Closings
All documents required by the provisions of this Agreement to have
been executed or delivered by the Borrower to the Administrative Agent, any
Lender or the Issuer on or before the applicable Borrowing Date shall have been
so executed or delivered on or before such Borrowing Date.
7. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that on and after the Effective Date and
until the later to occur of (a) the Commitment Termination Date and (b) the
payment in full of the Loans, the Reimbursement Obligations, the Fees and all
other sums payable under the Loan Documents, the Borrower will:
7.1 Legal Existence
Except as may otherwise be permitted by Sections 8.3 and 8.4,
maintain, and cause each Subsidiary to maintain, its corporate existence in good
standing in the jurisdiction of its incorporation or formation and in each other
jurisdiction in which the failure so to do could reasonably be expected to have
a Material Adverse effect, except that the corporate existence of Subsidiaries
operating closing or discontinued operations may be terminated.
7.2 Taxes
Pay and discharge when due, and cause each Subsidiary so to do, all
taxes, assessments, governmental charges, license fees and levies upon or with
respect to the Borrower and such Subsidiary, and upon the income, profits and
Property thereof unless, and only to the extent, that either (i)(a) such taxes,
assessments, governmental charges, license fees and levies shall be contested in
good faith and by appropriate proceedings diligently conducted by the Borrower
or such Subsidiary, and (b) such reserve or other appropriate provision as shall
be required by GAAP shall have been made therefor, or (ii) the failure to pay or
discharge such taxes, assessments, governmental charges, license fees and levies
could not reasonably be expected to have a Material Adverse effect.
7.3 Insurance
Keep, and cause each Subsidiary to keep, insurance with responsible
insurance companies in such amounts and against such risks as is usually carried
by the Borrower or such Subsidiary.
7.4 Performance of Obligations
Pay and discharge promptly when due, and cause each Subsidiary so to
do, all lawful Indebtedness, obligations and claims for labor, materials and
supplies or otherwise which, if unpaid, could reasonably be expected to (a) have
a Material Adverse effect, or (b) become a Lien on the Property of the Borrower
or any Subsidiary, except
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those Liens permitted under Section 8.2, provided that neither the Borrower nor
such Subsidiary shall be required to pay or discharge or cause to be paid or
discharged any such Indebtedness, obligation or claim so long as (i) the
validity thereof shall be contested in good faith and by appropriate proceedings
diligently conducted by the Borrower or such Subsidiary, and (ii) such reserve
or other appropriate provision as shall be required by GAAP shall have been made
therefor.
7.5 Condition of Property
Except for ordinary wear and tear, at all times, maintain, protect
and keep in good repair, working order and condition, all material Property
necessary for the operation of its business (other than Property which is
replaced with similar Property) as then being operated, and cause each
Subsidiary so to do.
7.6 Observance of Legal Requirements
Observe and comply in all material respects, and cause each
Subsidiary so to do, with all laws, ordinances, orders, judgments, rules,
regulations, certifications, franchises, permits, licenses, directions and
requirements of all Governmental Authorities, which now or at any time hereafter
may be applicable to it or to such Subsidiary, a violation of which could
reasonably be expected to have a Material Adverse effect.
7.7 Financial Statements and Other Information
Maintain, and cause each Subsidiary to maintain, a standard system
of accounting in accordance with GAAP, and furnish to each Lender:
(a) As soon as available and, in any event, within 120 days after
the close of each fiscal year, a copy of (x) the Borrower's 10-K in respect of
such fiscal year, and (y) (i) the Borrower's Consolidated Balance Sheet as of
the end of such fiscal year, and (ii) the related Consolidated Statements of
Earnings, Shareholders' Equity and Cash Flows, as of and through the end of such
fiscal year, setting forth in each case in comparative form the corresponding
figures in respect of the previous fiscal year, all in reasonable detail, and
accompanied by a report of the Borrower's auditors, which report shall state
that (A) such auditors audited such financial statements, (B) such audit was
made in accordance with generally accepted auditing standards in effect at the
time and provides a reasonable basis for such opinion, and (C) said financial
statements have been prepared in accordance with GAAP;
(b) As soon as available, and in any event within 60 days after the
end of each of the first three fiscal quarters of each fiscal year, a copy of
(x) the Borrower's 10-Q in respect of such fiscal quarter, and (y) (i) the
Borrower's Consolidated Balance Sheet as of the end of such quarter and (ii) the
related Consolidated Statements of Earnings, Shareholders' Equity and Cash Flows
for (A) such quarter and (B) the period from the beginning of the then current
fiscal year to the end of such quarter, in each case in comparable form with the
prior fiscal year, all in reasonable detail and prepared in accordance with GAAP
(without footnotes and subject to year-end adjustments);
(c) Simultaneously with the delivery of the financial statements
required by clauses (a) and (b) above, a certificate of the chief financial
officer or treasurer of the
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Borrower certifying that no Default or Event of Default shall have occurred or
be continuing or, if so, specifying in such certificate all such Defaults and
Events of Default, and setting forth computations in reasonable detail
demonstrating compliance with Sections 8.1 and 8.10.
(d) Prompt notice upon the Borrower becoming aware of any change in
a Pricing Level;
(e) Promptly upon becoming available, copies of all regular or
periodic reports (including, without limitation, current reports on Form 8-K)
which the Borrower or any Subsidiary may now or hereafter be required to file
with or deliver to the Securities and Exchange Commission, or any other
Governmental Authority succeeding to the functions thereof, and copies of all
material news releases sent to all stockholders;
(f) Prompt written notice of: (i) any citation, summons, subpoena,
order to show cause or other order naming the Borrower or any Subsidiary a party
to any proceeding before any Governmental Authority which could reasonably be
expected to have a Material Adverse effect, and include with such notice a copy
of such citation, summons, subpoena, order to show cause or other order, (ii)
any lapse or other termination of any license, permit, franchise or other
authorization issued to the Borrower or any Subsidiary by any Governmental
Authority, (iii) any refusal by any Governmental Authority to renew or extend
any license, permit, franchise or other authorization, and (iv) any dispute
between the Borrower or any Subsidiary and any Governmental Authority, which
lapse, termination, refusal or dispute, referred to in clause (ii), (iii) or
(iv) above, could reasonably be expected to have a Material Adverse effect;
(g) Prompt written notice of the occurrence of (i) each Default (ii)
each Event of Default and (iii) each Material Adverse change;
(h) Promptly upon receipt thereof, copies of any audit reports and
management letters delivered in connection with the statements referred to in
Section 7.7(a); and
(i) From time to time, such other information regarding the
financial position or business of the Borrower and the Subsidiaries as the
Administrative Agent, at the request of any Lender, may reasonably request.
7.8 Records
Upon reasonable notice and during normal business hours, permit
representatives of the Administrative Agent and each Lender to visit the offices
of the Borrower and each Subsidiary, to examine the books and records (other
than tax returns and work papers related to tax returns) thereof and auditors'
reports relating thereto, to discuss the affairs of the Borrower and each
Subsidiary with the respective officers thereof, and to meet and discuss the
affairs of the Borrower and each Subsidiary with the Borrower's auditors.
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7.9 Authorizations
Maintain and cause each Subsidiary to maintain, in full force and
effect, all copyrights, patents, trademarks, trade names, franchises, licenses,
permits, applications, reports, and other authorizations and rights, which, if
not so maintained, would individually or in the aggregate have a Material
Adverse effect.
7.10 Revco 10 1/8% Indenture Debt
Within three Business Days of the Effective Date, notify (or request
the trustee to notify) the holders of the Revco 10 1/8% Indenture Debt of
Revco's election to redeem all of the Revco 10 1/8% Indenture Debt on a
redemption date no later than 60 days from the Effective Date.
8. NEGATIVE COVENANTS
The Borrower covenants and agrees that on and after the Effective Date and
until the later to occur of (a) the Commitment Termination Date and (b) the
payment in full of the Loans, the Reimbursement Obligations, the Fees and all
other sums which are payable under the Loan Documents, the Borrower will not:
8.1 Subsidiary Indebtedness
Permit the Indebtedness of all Subsidiaries (excluding the ESOP
Guaranty, the Revco 9 1/8% Indenture Debt and the Revco 10 1/8% Indenture Debt)
to exceed (on a combined basis) 10% of Tangible Net Worth.
8.2 Liens
Create, incur, assume or suffer to exist any Lien against or on any
Property now owned or hereafter acquired by the Borrower or any of the
Subsidiaries, or permit any of the Subsidiaries so to do, except any one or more
of the following types of Liens: (a) Liens in connection with workers'
compensation, unemployment insurance or other social security obligations (which
phrase shall not be construed to refer to ERISA or the minimum funding
obligations under Section 412 of the Code), (b) Liens to secure the performance
of bids, tenders, letters of credit, contracts (other than contracts for the
payment of Indebtedness), leases, statutory obligations, surety, customs,
appeal, performance and payment bonds and other obligations of like nature, in
each such case arising in the ordinary course of business, (c) mechanics',
workmen's, carriers', warehousemen's, materialmen's, landlords' or other like
Liens arising in the ordinary course of business with respect to obligations
which are not due or which are being contested in good faith and by appropriate
proceedings diligently conducted, (d) Liens for taxes, assessments, fees or
governmental charges the payment of which is not required by Section 7.2, (e)
easements, rights of way, restrictions, leases of Property to others, easements
for installations of public utilities, title imperfections and restrictions,
zoning ordinances and other similar encumbrances affecting Property which in the
aggregate do not materially impair its use for the operation of the business of
the Borrower or such Subsidiary, (f) Liens on Property as set forth on Schedule
8.2 and any renewals thereof, provided that any such renewals attach only to
such Property, (g) Liens on Property of the Subsidiaries under capital leases
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and Liens on Property of the Subsidiaries acquired (whether as a result of
purchase, capital lease, merger or other acquisition) and either existing on
such Property when acquired, or created contemporaneously with or within 12
months of such acquisition to secure the payment or financing of the purchase
price of such Property (including the construction, development, substantial
repair, alteration or improvement thereof), and any renewals thereof, provided
that such Liens attach only to the Property so purchased or acquired (including
any such construction, development, substantial repair, alteration or
improvement thereof) and provided further that the Indebtedness secured by such
Liens is permitted by Section 8.1, (h) statutory Liens in favor of lessors
arising in connection with Property leased to the Borrower or any of the
Subsidiaries, (i) Liens of attachments, judgments or awards against the Borrower
or any of the Subsidiaries with respect to which an appeal or proceeding for
review shall be pending or a stay of execution or bond shall have been obtained,
or which are otherwise being contested in good faith and by appropriate
proceedings diligently conducted, and in respect of which adequate reserves
shall have been established in accordance with GAAP on the books of the Borrower
or such Subsidiary, (j) Liens securing Indebtedness of a Subsidiary to the
Borrower or another Subsidiary, (k) Liens (other than Liens permitted by any of
the foregoing clauses) arising in the ordinary course of its business which do
not secure Indebtedness and do not, in the aggregate, materially detract from
the value of the business of the Borrower and its Subsidiaries, taken as a
whole, and (l) additional Liens securing Indebtedness of the Borrower and the
Subsidiaries in an aggregate outstanding Consolidated principal amount not
exceeding 10% of Tangible Net Worth.
8.3 Dispositions
Make any Disposition, or permit any of its Subsidiaries so to do, of
all or substantially all of the assets of the Borrower and the Subsidiaries on a
Consolidated basis.
8.4 Merger or Consolidation, Etc.
The Borrower will not consolidate with, be acquired by, or merge
into or with any Person unless (x) immediately after giving effect thereto no
Default or Event of Default shall or would exist and (y) either (i) the Borrower
or (ii) a corporation organized and existing under the laws of one of the States
of the United States of America shall be the survivor of such consolidation or
merger, provided that if the Borrower is not the survivor, the corporation which
is the survivor shall expressly assume, pursuant to an instrument executed and
delivered to the Administrative Agent, and in form and substance satisfactory to
the Administrative Agent, all obligations of the Borrower under the Loan
Documents and the Administrative Agent shall have received such documents,
opinions and certificates as it shall have reasonable requested in connection
therewith.
8.5 Acquisitions
Make any Acquisition, or permit any of the Subsidiaries so to do,
except any one or more of the following: (a) Intercompany Dispositions permitted
by Section 8.3, (b) Acquisitions by the Borrower or any of the Subsidiaries,
provided that immediately before and after giving effect to each such
Acquisition no Default or Event of Default shall or would exist, and (c) the
CVS/Revco Merger.
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8.6 Restricted Payments
Make any Restricted Payment or permit any of the Subsidiaries so to
do, except any one or more of the following Restricted Payments: (a) any direct
or indirect Subsidiary may make dividends or other distributions to the Borrower
or to any other direct or indirect Subsidiary, and (b) the Borrower may make
Restricted Payments provided that, in the case of this clause (b), immediately
before and after giving effect thereto, no Event of Default shall or would
exist. Nothing in this Section 8.6 shall prohibit or restrict the declaration or
payment of dividends in respect of the Series One ESOP Convertible Preferred
Stock of the Borrower.
8.7 Limitation on Upstream Dividends by Subsidiaries
Permit or cause any of the Subsidiaries to enter into or agree, or
otherwise be or become subject, to any agreement, contract or other arrangement
(other than this Agreement and the indenture with respect to the Revco 10 1/8%
Indenture Debt) with any Person (each a "Restrictive Agreement") pursuant to the
terms of which (a) such Subsidiary is or would be prohibited from declaring or
paying any cash dividends on any class of its stock owned directly or indirectly
by the Borrower or any of the other Subsidiaries or from making any other
distribution on account of any class of any such stock (herein referred to as
"Upstream Dividends"), or (b) the declaration or payment of Upstream Dividends
by a Subsidiary to the Borrower or another Subsidiary, on an annual or
cumulative basis, is or would be otherwise limited or restricted ("Dividend
Restrictions"). Notwithstanding the foregoing, nothing in this Section 8.7 shall
prohibit:
(i) Dividend Restrictions set forth in any Restrictive Agreement in
effect on the date hereof and any extensions, refinancings, renewals or
replacements thereof; provided that the Dividend Restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Lenders than those Dividend Restrictions that are then
in effect and that are being extended, refinanced, renewed or replaced;
(ii) Dividend Restrictions existing with respect to any Person
acquired by the Borrower or any Subsidiary and existing at the time of such
acquisition, which Dividend Restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or its property or
assets acquired, and any extensions, refinancings, renewals or replacements of
any of the foregoing; provided that the Dividend Restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Lenders than those Dividend Restrictions that are then
in effect and that are being extended, refinanced, renewed or replaced; or
(iii) Dividend Restrictions consisting of customary net worth,
leverage and other financial covenants, customary covenants regarding the merger
of or sale of assets of a Subsidiary, customary restrictions on transactions
with affiliates, and customary subordination provisions governing Indebtedness
owed to the Borrower or any Subsidiary contained in, or required by, any
agreement governing Indebtedness owed to the Borrower or any Subsidiary
contained in, or required by, any agreement governing Indebtedness incurred by a
Subsidiary in accordance with Section 8.1.
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8.8 Limitation on Negative Pledges
Enter into any agreement, other than (i) this Agreement and (ii)
purchase money mortgages or capital leases permitted by this Agreement (in which
cases, any prohibition or limitation shall only be effective against the assets
financed thereby), or permit any Subsidiary so to do, which prohibits or limits
the ability of the Borrower or such Subsidiary to create, incur, assume or
suffer to exist any Lien upon any of its Property or revenues, whether now owned
or hereafter acquired.
8.9 CVS/Revco Merger Documents
Amend, modify or otherwise change any of the CVS/Revco Merger
Documents if such change would have a Material Adverse effect with respect to
the Borrower and the Subsidiaries taken as a whole (after giving effect to the
CVS/Revco Merger) since December 31, 1996 or would materially and adversely
affect the interest of the Administrative Agent or the Lenders under the Loan
Documents.
8.10 Ratio of Consolidated Indebtedness to Total Capitalization
Permit its ratio of Consolidated Indebtedness to Total
Capitalization at the end of any fiscal quarter to exceed 0.6:1.0.
9. DEFAULT
9.1 Events of Default
The following shall each constitute an "Event of Default" hereunder:
(a) The failure of the Borrower to make any payment of principal on
any Loan or any reimbursement payment in respect of any Letter of Credit when
due and payable; or
(b) The failure of the Borrower to make any payment of interest on
any Loan or of any Fee on any date when due and payable and such default shall
continue unremedied for a period of 5 Domestic Business Days after the same
shall be due and payable; or
(c) The failure of the Borrower to observe or perform any covenant
or agreement contained in Sections 2.5 and 7.1 or in Section 8; or
(d) The failure of the Borrower to observe or perform any other
covenant or agreement contained in this Agreement, and such failure shall have
continued unremedied for a period of 30 days after the Borrower shall have
become aware of such failure; or
(e) An Event of Default (as defined in any Reimbursement Agreement)
shall occur under any Reimbursement Agreement; or
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(f) Any representation or warranty of the Borrower (or of any of its
officers on its behalf) made in any Loan Document, or made in any certificate,
report, opinion (other than an opinion of counsel) or other document delivered
on or after the date hereof shall in any such case prove to have been incorrect
or misleading (whether because of misstatement or omission) in any material
respect when made; or
(g) (i) Obligations in an aggregate Consolidated amount in excess of
$25,000,000 of the Borrower (other than its obligations hereunder and under the
Notes) and the Subsidiaries, whether as principal, guarantor, surety or other
obligor, for the payment of any Indebtedness or any net liability under interest
rate swap, collar, exchange or cap agreements, (A) shall become or shall be
declared to be due and payable prior to the expressed maturity thereof, or (B)
shall not be paid when due or within any grace period for the payment thereof,
or (ii) any holder of any such obligations shall have the right to declare the
Indebtedness evidenced thereby due and payable prior to its stated maturity; or
(h) The Borrower or any Subsidiary shall (i) suspend or discontinue
its business (except for store closings in the ordinary course of business and
except in connection with a permitted Disposition under Section 8.3 and as may
otherwise be expressly permitted herein), or (ii) make an assignment for the
benefit of creditors, or (iii) generally not be paying its debts as such debts
become due, or (iv) admit in writing its inability to pay its debts as they
become due, or (v) file a voluntary petition in bankruptcy, or (vi) become
insolvent (however such insolvency shall be evidenced), or (vii) file any
petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment of debt, liquidation or dissolution or similar relief
under any present or future statute, law or regulation of any jurisdiction
(including under any law applicable to insurance companies), or (viii) petition
or apply to any tribunal, or any other Governmental Authority, for any receiver,
custodian or any trustee for any substantial part of its Property, or (ix) be
the subject of any proceeding specified in clause (vii) or (viii) filed against
it which remains undismissed for a period of 60 consecutive days, or (x) file
any answer admitting or not contesting the material allegations of any such
petition filed against it, or of any order, judgment or decree approving such
petition in any such proceeding, or (xi) seek, approve, consent to, or acquiesce
in any such proceeding, or in the appointment of any trustee, receiver,
custodian, liquidator, or fiscal agent for it, or any substantial part of its
Property, or an order is entered appointing any such trustee, receiver,
custodian, liquidator or fiscal agent and such order remains unstayed and in
effect for 60 consecutive days, or (xii) take any formal action for the purpose
of effecting any of the foregoing (except as may otherwise be expressly
permitted herein); or
(i) An order for relief is entered under the United States
bankruptcy laws or any other decree or order is entered by a court or other
Governmental Authority having jurisdiction and continues unstayed and in effect
for a period of 60 consecutive days (i) adjudging the Borrower or any Subsidiary
bankrupt or insolvent, or (ii) approving as properly filed a petition seeking
reorganization, liquidation, arrangement, adjustment or composition of, or in
respect of the Borrower or any Subsidiary under the United States bankruptcy
laws or any other applicable Federal or state law, or (iii) appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Borrower or any Subsidiary or of substantially all of
the Property of any thereof, or (iv) ordering the winding up or liquidation of
the affairs of the Borrower or any Subsidiary; or
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(j) Judgments or decrees in an aggregate Consolidated amount in
excess of $25,000,000 against the Borrower and the Subsidiaries shall remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of 60 days; or
(k) After the Effective Date a Change of Control shall occur; or
(l) (i) Any Termination Event shall occur (x) with respect to any
Pension Plan (other than a Multiemployer Plan) or (y) with respect to any other
retirement plan subject to Section 302 of ERISA or Section 412 of the Internal
Revenue Code, which plan, during the five year period prior to such Termination
Event, was the responsibility in whole or in part of the Borrower, any
Subsidiary or any ERISA Affiliate, provided that this clause (y) shall only
apply if, in connection with such Termination Event, it is reasonably likely
that liability under Section 4069 of ERISA in an aggregate Consolidated amount
in excess of $25,000,000 will be imposed upon the Borrower, any Subsidiary or
any ERISA Affiliate; (ii) any Accumulated Funding Deficiency, whether or not
waived, in an aggregate Consolidated amount in excess of $25,000,000 shall exist
with respect to any Pension Plan with respect to any Pension Plan (other than a
Multiemployer Plan); (iii) any Person shall engage in any Prohibited Transaction
involving any Employee Benefit Plan; (iv) the Borrower, any Subsidiary or any
ERISA Affiliate shall fail to pay when due an amount which is payable by it to
the PBGC or to a Pension Plan (including a Multiemployer Plan) under Title IV of
ERISA; (v) the imposition of any tax under Section 4980(B)(a) of the Internal
Revenue Code; or (vi) the assessment of a civil penalty with respect to any
Employee Benefit Plan under Section 502(c) of ERISA; in each case, to the extent
such event or condition would have a Material Adverse effect.
9.2 Remedies
(a) Upon the occurrence of an Event of Default or at any time
thereafter during the continuance of an Event of Default, the Administrative
Agent, at the written request of the Required Lenders, shall notify the Borrower
that the Commitments, the Swing Line Commitment and the Letter of Credit
Commitment have been terminated and/or that all of the Loans, the Notes and the
Reimbursement Obligations and all accrued and unpaid interest on any thereof and
all other amounts owing under the Loan Documents have been declared immediately
due and payable, provided that upon the occurrence of an Event of Default under
Section 9.1(h) or (i) with respect to the Borrower, the Commitments, the Swing
Line Commitment and the Letter of Credit Commitment shall automatically
terminate and all of the Loans, the Notes and the Reimbursement Obligations and
all accrued and unpaid interest on any thereof and all other amounts owing under
the Loan Documents shall become immediately due and payable without declaration
or notice to the Borrower. To the fullest extent not prohibited by law, except
for the notice provided for in the preceding sentence, the Borrower expressly
waives any presentment, demand, protest, notice of protest or other notice of
any kind in connection with the Loan Documents and its obligations thereunder.
To the fullest extent not prohibited by law, the Borrower further expressly
waives and covenants not to assert any appraisement, valuation, stay, extension,
redemption or similar law, now or at any time hereafter in force which might
delay, prevent or otherwise impede the performance or enforcement of the Loan
Documents.
(b) In the event that the Commitments, the Swing Line Commitment and
the Letter of Credit Commitment shall have been terminated or all of the Loans,
the Notes
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and the Reimbursement Obligations shall have been declared due and payable
pursuant to the provisions of this Section, (i) the Borrower shall forthwith
deposit an amount equal to the Letter of Credit Exposure in a cash collateral
account with and under the exclusive control of the Administrative Agent, and
(ii) the Administrative Agent, the Issuer and the Lenders agree, among
themselves, that any funds received from or on behalf of the Borrower under any
Loan Document by the Issuer or any Lender (except funds received by the Issuer
or any Lender as a result of a purchase from the Issuer or such Lender, as the
case may be, pursuant to the provisions of Section 11.9) shall be remitted to
the Administrative Agent, and shall be applied by the Administrative Agent in
payment of the Loans, the Reimbursement Obligations and the other obligations of
the Borrower under the Loan Documents in the following manner and order: (1)
first, to reimburse the Administrative Agent, the Issuer and the Lenders, in
that order, for any expenses due from the Borrower pursuant to the provisions of
Section 11.5 and the Reimbursement Agreements, (2) second, to the payment of the
Fees, (3) third, to the payment of any expenses or amounts (other than the
principal of and interest on the Loans and the Notes and the Reimbursement
Obligations) payable by the Borrower to the Administrative Agent, the Issuer or
any of the Lenders under the Loan Documents, (4) fourth, to the payment, pro
rata according to the outstanding principal balance of the Loans and the Letter
of Credit Exposure of each Lender, of interest due on the Loans and the
Reimbursement Obligations, (5) fifth, to the payment, pro rata according to the
sum of (A) the aggregate outstanding principal balance of the Loans plus (B) the
aggregate outstanding balance of the Reimbursement Obligations, of the aggregate
outstanding principal balance of the Loans and the aggregate outstanding balance
of the Reimbursement Obligations, and (6) sixth, any remaining funds shall be
paid to whosoever shall be entitled thereto or as a court of competent
jurisdiction shall direct.
(c) In the event that the Loans and the Notes and the Reimbursement
Obligations shall have been declared due and payable pursuant to the provisions
of this Section 9.2, the Administrative Agent upon the written request of the
Required Lenders, shall proceed to enforce the Reimbursement Obligations and the
rights of the holders of the Notes by suit in equity, action at law and/or other
appropriate proceedings, whether for payment or the specific performance of any
covenant or agreement contained in the Loan Documents. In the event that the
Administrative Agent shall fail or refuse so to proceed, the Issuer and each
Lender shall be entitled to take such action as the Required Lenders shall deem
appropriate to enforce its rights under the Loan Documents.
10. AGENT
10.1 Appointment
Each Lender hereby irrevocably designates and appoints BNY as the
Administrative Agent of such Lender under the Loan Documents and each Lender
irrevocably authorizes the Administrative Agent to take such action on its
behalf under the provisions of the Loan Documents and to exercise such powers
and perform such duties as are expressly delegated to the Administrative Agent
by the terms of the Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained in the Loan Documents, the Administrative Agent shall not have any
duties or responsibilities except those expressly set forth in the Loan
Documents, or any fiduciary relationship with any Lender, and no implied
covenants,
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functions, responsibilities, duties, obligations or liabilities shall be read
into the Loan Documents or otherwise exist against the Administrative Agent.
10.2 Delegation of Duties
The Administrative Agent may execute any of its duties under the
Loan Documents by or through agents or attorneys-in-fact and shall be entitled
to rely upon the advice of counsel concerning all matters pertaining to such
duties, and shall not be liable for any action taken or omitted to be taken in
good faith upon the advice of such counsel.
10.3 Exculpatory Provisions
None of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any
action lawfully taken or omitted to be taken by the Administrative Agent or such
Person under or in connection with the Loan Documents (except the Administrative
Agent for its own gross negligence or willful misconduct), or (ii) responsible
in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any party contained in the Loan Documents
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Administrative Agent under or in connection
with, the Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Loan Documents or for any failure of
the Borrower or any other Person to perform its obligations thereunder. The
Administrative Agent shall not be under any obligation to any Lender to
ascertain or to inquire into the observance or performance of any of the
covenants or agreements contained in, or conditions of, the Loan Documents, or
to inspect the Property, books or records of the Borrower or any Subsidiary. The
Administrative Agent shall not be under any liability or responsibility to the
Borrower or any other Person as a consequence of any failure or delay in
performance, or any breach, by any Lender of any of its obligations under any of
the Loan Documents. The Lenders acknowledge that the Administrative Agent shall
not be under any duty to take any discretionary action permitted under the Loan
Documents unless the Administrative Agent shall be requested in writing to do so
by the Required Lenders.
10.4 Reliance by Administrative Agent
The Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, request,
consent, certificate, affidavit, opinion, letter, cablegram, telegram, fax,
telex or teletype message, statement, order or other document or conversation
reasonably believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including counsel to the Borrower), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent may
treat each Lender, or the Person designated in the last notice filed under
Section 11.7, as the holder of all of the interests of such Lender in its Loans
and Notes until written notice of transfer, signed by such Lender (or the Person
designated in the last notice filed with the Administrative Agent) and by the
Person designated in such written notice of transfer, in form and substance
satisfactory to the Administrative Agent, shall have been filed with the
Administrative Agent and all requirements of Section 11.7 have been satisfied.
The Administrative Agent shall not be under any duty to examine or pass upon the
validity, effectiveness or genuineness of the Loan Documents or any
instrument,
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document or communication furnished pursuant thereto or in connection therewith,
and the Administrative Agent shall be entitled to assume that the same are
valid, effective and genuine, have been signed or sent by the proper parties and
are what they purport to be. The Administrative Agent shall be fully justified
in failing or refusing to take any action not expressly required under the Loan
Documents unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate. The Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, under the Loan
Documents in accordance with a request of the Required Lenders or, if required
by Section 11.1, all Lenders, and such request and any action taken or failure
to act pursuant thereto shall be binding upon the Borrower, all the Lenders and
all future holders of the Notes.
10.5 Notice of Default
The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default unless the
Administrative Agent shall have received written notice thereof from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating such notice is a "Notice of Default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall
promptly give notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders, provided that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action or give such
directions, or refrain from taking such action or giving such directions, with
respect to such Default or Event of Default as it shall deem to be in the best
interests of the Lenders.
10.6 Non-Reliance
Each Lender expressly acknowledges that neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or Affiliates has made any representations or warranties to such Lender and that
no act by the Administrative Agent hereafter, including any review of the
affairs of the Borrower or the Subsidiaries, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Lender. Each
Lender represents to the Administrative Agent that such Lender has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own evaluation of and investigation into the business,
operations, Property, financial and other condition and creditworthiness of the
Borrower and the Subsidiaries and has made its own decision to enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Administrative Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, evaluations and decisions in taking or not taking
action under the Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, Property, financial
and other condition and creditworthiness of the Borrower and the Subsidiaries.
Each Lender acknowledges that a copy of this Agreement and all exhibits and
schedules hereto have been made available to it and its individual counsel for
review, and each Lender acknowledges that it is satisfied with the form and
substance thereof. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the
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Administrative Agent hereunder, the Administrative Agent shall have no duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, Property, financial and other condition or
creditworthiness of the Borrower or the Subsidiaries which may come into the
possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
10.7 Indemnification
Each Lender agrees to indemnify the Administrative Agent in its
capacity as such (to the extent not promptly reimbursed by the Borrower and
without limiting the obligation of the Borrower to do so), pro rata according to
(i) at any time when no Loans are outstanding, its Commitment Percentage, or if
no Commitments then exist, its Commitment Percentage on the last day on which
Commitments did exist, and (ii) at any time when Loans are outstanding (x) if
the Commitments then exist, its Commitment Percentage or (y) if the Commitments
have been terminated or otherwise no longer exist, the percentage equal to the
fraction (A) the numerator of which is such Lender's share of the Aggregate
Credit Exposure and (B) the denominator of which is the Aggregate Credit
Exposure, from and against any and all liabilities, obligations, claims, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind whatsoever, including any amounts paid to the Lenders by or for the
account of the Borrower pursuant to the terms of the Loan Documents that are
subsequently rescinded or avoided (or must otherwise be restored or returned),
which may at any time (including at any time following the payment of the Loans
and the Notes) be imposed on, incurred by or asserted against the Administrative
Agent in any way relating to or arising out of the Loan Documents or any other
document contemplated by or referred to therein or the transactions contemplated
thereby or any action taken or omitted to be taken by the Administrative Agent
under or in connection therewith; provided that no Lender shall be liable for
the payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent resulting solely from the gross negligence or willful misconduct of the
Administrative Agent. The agreements in this Section shall survive the payment
of the Loans and the Notes and all other amounts payable under the Loan
Documents. If the Administrative Agent is subsequently reimbursed by the
Borrower for such amounts, the Administrative Agent shall remit to the Lenders
their pro rata shares of such reimbursement to the extent they previously paid
such amounts.
10.8 Administrative Agent in Its Individual Capacity
BNY and each Affiliate thereof, may make loans to, accept deposits
from, issue letters of credit for the account of and generally engage in any
kind of business with the Borrower and the Subsidiaries as though it were not
the Administrative Agent. With respect to the Commitment made or renewed by BNY
and each Note issued to BNY, BNY shall have the same rights and powers under the
Loan Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, the Issuer and the Swing Line Lender, and the term
"Lender" shall include BNY.
10.9 Successor Administrative Agent
If at any time the Administrative Agent deems it advisable, in its
sole discretion, it may submit to each Lender a written notification of its
resignation as
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Administrative Agent under the Loan Documents, such resignation to be effective
on the earlier to occur of (a) the thirtieth day after the date of such notice,
and (b) the date upon which any successor to the Administrative Agent, in
accordance with the provisions of this Section, shall have accepted in writing
its appointment as successor Administrative Agent. Upon any such resignation,
the Required Lenders shall have the right to appoint from among the Lenders a
successor Administrative Agent, which successor Administrative Agent, provided
that no Default or Event of Default shall then exist, shall be reasonably
satisfactory to the Borrower. If no such successor Administrative Agent shall
have been so appointed by the Required Lenders and accepted such appointment
within 30 days after the retiring Administrative Agent's giving of notice of
resignation, then the retiring Administrative Agent may, on behalf of the
Lenders, appoint a successor Administrative Agent, which successor
Administrative Agent shall be a commercial bank organized and licensed under the
laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $500,000,000. Upon the written
acceptance of any appointment as Administrative Agent hereunder by a successor
Administrative Agent, such successor Administrative Agent shall automatically
become a party to this Agreement and shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent's rights, powers,
privileges and duties as Administrative Agent under the Loan Documents shall be
terminated. The Borrower and the Lenders shall execute such documents as shall
be necessary to effect such appointment. After any retiring Administrative
Agent's resignation as Administrative Agent, the provisions of this Section 10
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was the Administrative Agent. If at any time there shall not be a duly
appointed and acting Administrative Agent, upon notice duly given, the Borrower
agrees to make each payment when due under the Loan Documents directly to the
Lenders entitled thereto during such time.
10.10 Documentation Agent and Syndication Agent
The Documentation Agent and Syndication Agent shall have no duties
or obligations under the Loan Documents in their capacity as Documentation Agent
and Syndication Agent.
11. OTHER PROVISIONS
11.1 Amendments, Waivers, Etc.
With the written consent of the Required Lenders, the Administrative
Agent and the Borrower may, from time to time, enter into written amendments,
supplements or modifications of the Loan Documents and, with the written consent
of the Required Lenders, the Administrative Agent on behalf of the Lenders may
execute and deliver to any such parties a written instrument waiving or
consenting to the departure from, on such terms and conditions as the
Administrative Agent may specify in such instrument, any of the requirements of
the Loan Documents or any Default or Event of Default and its consequences,
provided that no such amendment, supplement, modification, waiver or consent
shall, without the consent of all of the Lenders (i) increase the Commitment
Amount of any Lender (provided that no waiver of a Default or Event of Default
shall be deemed to constitute such an increase), (ii) extend the Commitment
Period, (iii) reduce the amount, or extend the time of payment, of the Fees,
(iv) reduce the rate,
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or extend the time of payment of, interest on any Revolving Credit Loan, any
Revolving Credit Note or any Reimbursement Obligation (other than the
applicability of any post-default increase in such rate of interest), (v) reduce
the amount, or extend the time of payment of any payment of any Reimbursement
Obligation or principal on any Revolving Credit Loan or any Revolving Credit
Note, (vi) decrease or forgive the principal amount of any Revolving Credit
Loan, any Revolving Credit Note or any Reimbursement Obligation, (vii) consent
to any assignment or delegation by the Borrower of any of its rights or
obligations under any Loan Document, (viii) change the provisions of this
Section 11.1, (ix) change the definition of Required Lenders, (x) change the
several nature of the obligations of the Lenders, (xi) change the sharing
provisions among Lenders, or (xii) extend the expiration date of a Letter of
Credit beyond the Commitment Termination Date. Notwithstanding the foregoing, no
such amendment, supplement, modification, waiver or consent shall (A) amend,
modify or waive any provision of Section 10 or otherwise change any of the
rights or obligations of the Administrative Agent, the Issuer or the Swing Line
Lender under any Loan Document without the written consent of the Administrative
Agent, the Issuer or the Swing Line Lender, as the case may be, (B) change the
Letter of Credit Commitment, change the amount or the time of payment of the
Letter of Credit Commissions, or change any other term or provision which
relates to the Letter of Credit Commitment or the Letters of Credit without the
written consent of the Issuer, (C) change the Swing Line Commitment, change the
amount or the time of payment of the Swing Line Loans or interest thereon or
change any other term or provision which relates to the Swing Line Commitment or
the Swing Line Loans without the written consent of the Swing Line Lender or (D)
change the amount or the time of payment of any Competitive Bid Loan or interest
thereon without the written consent of the Lender holding such Competitive Bid
Loan. Any such amendment, supplement, modification, waiver or consent shall
apply equally to each of the Lenders and shall be binding upon the parties to
the applicable Loan Document, the Lenders, the Administrative Agent and all
future holders of the Notes and the Reimbursement Obligations. In the case of
any waiver, the Borrower, the Lenders and the Administrative Agent shall be
restored to their former position and rights under the Loan Documents, but any
Default or Event of Default waived shall not extend to any subsequent or other
Default or Event of Default, or impair any right consequent thereon.
11.2 Notices
Except as otherwise expressly provided herein, all notices, requests
and demands to or upon the respective parties hereto to be effective shall be in
writing and, if in writing, shall be deemed to have been duly given or made (a)
when delivered by hand, (b) one Domestic Business Day after having been sent by
overnight courier service at the cost of the sender, (c) five Domestic Business
Days after having been deposited in the mail, first-class postage prepaid, or
(d) in the case of fax notice, when sent, addressed as follows in the case of
the Borrower, the Administrative Agent, the Issuer and the Swing Line Lender,
and as set forth in Exhibit A in the case of each of the Lenders, or to such
other addresses as to which the Administrative Agent may be hereafter notified
by the respective parties hereto or any future holders of the Notes:
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The Borrower:
CVS Corporation
1 CVS Drive
Woonsocket, Rhode Island 02895
Attention: Philip C. Galbo,
Vice President and Treasurer
Facsimile: (401) 769-2211
Telephone: (401) 765-1500
with a copy, in the case of a notice of Default
or Event of Default, to:
CVS Corporation
1 CVS Drive
Woonsocket, Rhode Island 02895
Attention: Legal Department
Facsimile: (401) 765-7887 or 9304
Telephone: (401) 765-1500
The Administrative Agent, the Swing Line Lender and the Issuer:
in the case of each Borrowing Request, each notice of
prepayment under Section 2.7, each Letter of Credit Request,
each Competitive Bid Request, each Competitive Bid, and each
Competitive Bid Accept/Reject Letter:
The Bank of New York
One Wall Street
New York, New York 10286
Attention: Carol Surles,
Agency Function Administration
Facsimile: (212) 635-6365,6366 or 6367
Telephone: (212) 635-4695,
in all other cases:
The Bank of New York
Retailing Industry Division
8th Floor
One Wall Street
New York, New York 10286
Attention: Howard F. Bascom,
Vice President
Facsimile: (212) 635-1481
Telephone: (212) 635-7894,
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except that any notice, request or demand by the Borrower to or upon the
Administrative Agent or the Lenders pursuant to Sections 2.3, 2.4, 2.6, 2.7,
2.8, 2.9 or 3.3 shall not be effective until received. Any party to a Loan
Document may rely on signatures of the parties thereto which are transmitted by
fax or other electronic means as fully as if originally signed.
11.3 No Waiver; Cumulative Remedies
No failure to exercise and no delay in exercising, on the part of
the Administrative Agent, any Lender or the Issuer, any right, remedy, power or
privilege under any Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, remedy, power or privilege under
any Loan Document preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The rights, remedies, powers and
privileges under the Loan Documents are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties
All representations and warranties made in the Loan Documents and in
any document, certificate or statement delivered pursuant thereto or in
connection therewith shall survive the execution and delivery of the Loan
Documents.
11.5 Payment of Expenses and Taxes; Indemnified Liabilities
The Borrower agrees, promptly upon presentation of a statement or
invoice therefor setting forth in reasonable detail the items thereof, and
whether any Loan is made or Letter of Credit is issued, (a) to pay or reimburse
the Administrative Agent and its Affiliates for all its reasonable costs and
expenses actually incurred in connection with the development, syndication,
preparation and execution of, and any amendment, waiver, consent, supplement or
modification to, the Loan Documents, any documents prepared in connection
therewith and the consummation of the transactions contemplated thereby, whether
such Loan Documents or any such amendment, waiver, consent, supplement or
modification to the Loan Documents or any documents prepared in connection
therewith are executed and whether the transactions contemplated thereby are
consummated, including the reasonable fees and disbursements of Special Counsel,
(b) to pay, indemnify, and hold the Administrative Agent, the Lenders and the
Issuer harmless from any and all recording and filing fees and any and all
liabilities and penalties with respect to, or resulting from any delay (other
than penalties to the extent attributable to the negligence of the
Administrative Agent, the Lenders or the Issuer, as the case may be, in failing
to pay such fees or other liabilities when due) in paying, stamp, excise and
other similar taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of, or consummation of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, the Loan Documents and any such
other documents, and (c) to pay, reimburse, indemnify and hold each Indemnified
Person harmless from and against any and all other liabilities, obligations,
claims, losses, damages, penalties, actions, judgments, suits, costs, expenses
and disbursements of any kind or nature whatsoever (including reasonable counsel
fees and disbursements of counsel (including the allocated costs of internal
counsel) and such local counsel as may be required) actually incurred with
respect to the
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enforcement, performance of, and preservation of rights under, the Loan
Documents (all the foregoing, collectively, the "Indemnified Liabilities") and,
if and to the extent that the foregoing indemnity may be unenforceable for any
reason, the Borrower agrees to make the maximum payment permitted under
applicable law; provided that the Borrower shall have no obligation hereunder to
pay Indemnified Liabilities to an Indemnified Person to the extent arising from
its gross negligence or willful misconduct. The agreements in this Section shall
survive the termination of the Commitments and the payment of the Loans and the
Notes and all other amounts payable under the Loan Documents.
11.6 Lending Offices
Each Lender shall have the right at any time and from time to time
to transfer any Loan to a different office of such Lender, subject to Section
3.10.
11.7 Successors and Assigns
(a) The Loan Documents shall be binding upon and inure to the
benefit of the Borrower, the Lenders, the Administrative Agent, the Issuer, all
future holders of the Notes and the Reimbursement Obligations and their
respective successors and assigns; provided that the Borrower shall not assign,
transfer or delegate any of its rights or obligations under the Loan Documents
without the prior consent of the Administrative Agent, the Issuer and all of the
Lenders.
(b) Notwithstanding Section 11.7(c), but subject to Section 11.7(e),
each Lender may at any time assign all or any portion of its rights under any
Loan Document to any Federal Reserve Bank.
(c) In addition to its rights under Section 11.7(b), each Lender
shall have the right, at any time, upon written notice to the Administrative
Agent of its intent to do so, to sell, assign, transfer or negotiate (each an
"Assignment") all or any portion of all of its Loans, its Commitment and its
Notes and its interest in the Loan Documents to any subsidiary or Affiliate of
such Lender, to any other Lender or, with the prior written consent of the
Borrower, the Swing Line Lender and the Issuer (which consents shall not be
unreasonably withheld and shall not be required of the Borrower if, at the time
of such Assignment, an Event of Default shall exist), to any other bank,
insurance company, pension fund, mutual or other similar fund or other financial
institution, provided that (i) the assigning Lender shall simultaneously assign
to the same assignee the same percentage of its interest under the Other Credit
Agreement, unless otherwise consented to by the Borrower, (ii) each such
Assignment shall be of a constant, and not varying, percentage of all of the
assigning Lender's rights and obligations under the Loan Documents and be in a
minimum amount (together with the simultaneous assignment made under the Other
Credit Agreement) of $5,000,000 (which minimum amount shall not be applicable to
an Assignment by a Lender to a subsidiary or Affiliate of such Lender) or the
full amount of such Lender's Commitment, and (iii) the parties to each such
Assignment (excluding the Borrower if the Borrower is a party to such
assignment) shall execute and deliver to the Administrative Agent an Assignment
and Acceptance Agreement, together with a fee (the "Assignment Fee"), payable to
the Administrative Agent, of $1,750 ($3,500 if no simultaneous assignment is
being made by such parties under the Other Credit Agreement). Upon receipt of
each such executed Assignment and Acceptance Agreement together with the
Assignment Fee therefor, the Administrative Agent shall execute the
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same and, in the event that either the assignee thereunder is a Lender (or a
subsidiary or Affiliate thereof) or the Borrower shall have consented to such
assignment (to the extent that such consent was not unreasonably withheld and is
required as aforesaid), (i) record the same and execute two copies of such
Assignment and Acceptance Agreement in the appropriate place, deliver one copy
to the assignor and one copy to the assignee, and (ii) request the Borrower to
execute and deliver (1) to such assignee, one or more Notes, in an aggregate
principal amount equal to the Loans assigned to, and Commitment assumed by, such
assignee, and (2) to such assignor, in the event that such assignor shall retain
any Loans and Commitment, one or more Notes in an aggregate principal amount
equal to the balance of such assignor Lender's Loans and Commitment, in each
case against receipt of such assignor Lender's existing Note or Notes, as the
case may be, appropriately marked to indicate their substitution. The Borrower
agrees that it shall, upon each such request of the Administrative Agent,
execute and deliver such new Notes at its own cost and expense. Upon such
delivery, acceptance and recording by the Administrative Agent, from and after
the effective date specified in such Assignment and Acceptance Agreement, the
assignee thereunder shall be a party hereto and shall for all purposes of the
Loan Documents be deemed a "Lender" and, to the extent provided in such
Assignment and Acceptance Agreement, the assignor Lender thereunder shall be
released from its obligations under the Loan Documents.
(d) In addition to the participations provided for in Section
11.9(b), each Lender may grant participations in all or any part of its Loans,
its Notes and its Commitment to one or more banks, insurance companies, pension
funds, mutual funds or other financial institutions, provided that (i) such
Lender's obligations under the Loan Documents shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties to the Loan
Documents for the performance of such obligations, (iii) the Borrower, the
Administrative Agent, the Issuer and the Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents, (iv) no sub-participations shall be
permitted, and (v) the voting rights of any holder of any participation shall be
limited to decisions that in accordance with Section 11.1 require the consent of
all of the Lenders. The Borrower acknowledges and agrees that any such
participant shall for purposes of Section 3.5, 3.6, 3.10 and 11.5 be deemed to
be a "Lender", provided that in no event shall the Borrower be liable for any
amounts under said Sections in excess of the amounts for which it would be
liable but for such participation.
(e) No Lender shall, as between and among the Borrower, the
Administrative Agent, the Issuer, the Swing Line Lender and such Lender, be
relieved of any of its obligations under the Loan Documents as a result of any
assignment of or granting of participations in, all or any part of its Loans,
its Commitment and its Notes, except that a Lender shall be relieved of its
obligations to the extent of any such assignment of all or any part of its
Loans, its Commitment or its Notes pursuant to Section 11.7(c).
11.8 Counterparts
Each of the Loan Documents (other than the Notes) may be executed on
any number of separate counterparts and all of said counterparts taken together
shall be deemed to constitute one and the same agreement. It shall not be
necessary in making proof of any Loan Document to produce or account for more
than one counterpart signed
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by the party to be charged. A set of the copies of this Agreement signed by all
of the parties hereto shall be lodged with each of the Borrower and the
Administrative Agent. Any party to a Loan Document may rely upon the signatures
of any other party thereto which are transmitted by fax or other electronic
means to the same extent as if originally signed.
11.9 Set-off and Sharing of Payments
(a) In addition to any rights and remedies of the Lenders and the
Issuer provided by law, upon the occurrence of an Event of Default under Section
9.1(a) or (b) or upon the acceleration of the payment of the Notes, each Lender
and the Issuer shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower, to set-off and apply against
any indebtedness or other liability, whether matured or unmatured, of the
Borrower to such Lender or the Issuer arising under the Loan Documents, any
amount owing from such Lender or the Issuer to the Borrower. To the extent
permitted by applicable law, the aforesaid right of set-off may be exercised by
such Lender or the Issuer against the Borrower or against any trustee in
bankruptcy, custodian, debtor in possession, assignee for the benefit of
creditors, receiver, or execution, judgment or attachment creditor of the
Borrower, or against anyone else claiming through or against the Borrower or
such trustee in bankruptcy, custodian, debtor in possession, assignee for the
benefit of creditors, receivers, or execution, judgment or attachment creditor,
notwithstanding the fact that such right of set-off shall not have been
exercised by such Lender or the Issuer prior to the making, filing or issuance
of, service upon such Lender or the Issuer of, or notice to such Lender or the
Issuer of, any petition, assignment for the benefit of creditors, appointment or
application for the appointment of a receiver, or issuance of execution,
subpoena, order or warrant. Each Lender and the Issuer agree promptly to notify
the Borrower and the Administrative Agent after each such set-off and
application made by such Lender or the Issuer, provided that the failure to give
such notice shall not affect the validity of such set-off and application.
(b) If any Lender or the Issuer (each a "Benefited Lender") shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) on account of its Loans or its Notes or the
Reimbursement Obligations in excess of its pro rata share (in accordance with
the outstanding principal balance of all Loans or the Reimbursement Obligations
) of payments then due and payable on account of the Loans and Notes received by
all the Lenders or the Reimbursement Obligations, such Lender or the Issuer, as
the case may be, shall forthwith purchase, without recourse, for cash, from the
other Lenders such participations in their Loans and Notes or the Reimbursement
Obligations as shall be necessary to cause such purchasing Lender or the Issuer
to share the excess payment with each of them according to their pro rata share
(in accordance with the outstanding principal balance of all Loans or the
Reimbursement Obligations), provided that if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender or the Issuer, such
purchase from each Lender shall be rescinded and each such Lender shall repay to
the purchasing Lender or the Issuer the purchase price to the extent of such
recovery, together with an amount equal to such Lender's pro rata share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender or
the Issuer) of any interest or other amount paid or payable by the purchasing
Lender in respect of the total amount so recovered. The Borrower agrees, to the
fullest extent permitted by law, that any Lender or the Issuer so purchasing a
participation from another
-62-
<PAGE>
Lender pursuant to this Section may exercise such rights to payment (including
the right of set-off) with respect to such participation as fully as if such
Lender or the Issuer were the direct creditor of the Borrower in the amount of
such participation.
11.10 Indemnity
The Borrower agrees to indemnify and hold harmless each of the
Administrative Agent, the Issuer, each Lender and their respective Affiliates,
officers, directors, employees, agents and representatives (each an "Indemnified
Person") from and against any loss, cost, liability, damage or expense,
including the reasonable fees and disbursements of counsel (including the
allocated costs of internal counsel) and such local counsel as may be required
to represent such Indemnified Person actually incurred by such Indemnified
Person in preparing for, defending against, or providing evidence, producing
documents or taking any other action in respect of, any litigation,
administrative proceeding or investigation under any federal securities law or
any other statute of any jurisdiction, or any regulation, or at common law or
otherwise, which is alleged to arise out of or is based upon (1) any untrue
statement or alleged untrue statement of any material fact by or on behalf of
the Borrower or any Subsidiary, in any document or schedule executed or filed
with any Governmental Authority by or on behalf of the Borrower or any
Subsidiary which relates to the transactions contemplated by the Loan Documents,
(2) any omission or alleged omission by or on behalf of the Borrower or any
Subsidiary to state any material fact required to be stated in such document or
schedule, or necessary to make the statements made therein, in light of the
circumstances under which made, not misleading, (3) any acts, practices or
omissions or alleged acts, practices or omissions of the Borrower or its agents
relating to the use of the proceeds of any Loan or Letter of Credit which is
alleged to be in violation of Section 2.5, or in violation of any federal
securities law or of any other statute, regulation or other law of any
jurisdiction applicable thereto, or (4) any Loan Document or any other document
contemplated by or referred to therein or the transactions contemplated thereby
or any action taken or omitted to be taken by such Indemnified Person under or
in connection with any of the foregoing. Notwithstanding the above, the Borrower
shall have no liability under clause (4) of this Section to indemnify or hold
harmless any Indemnified Person for any loss, cost, liability, damage or expense
relating to income or withholding taxes or any tax in lieu of such taxes. The
indemnity set forth herein shall be in addition to any other obligations or
liabilities of the Borrower to each Indemnified Person hereunder or at common
law or otherwise, shall include the reasonable fees and disbursements of counsel
(including the allocated costs of internal counsel) and such local counsel as
may be required in connection with establishing liability under this Section or
collecting amounts payable under this Section and shall survive any termination
of this Agreement, the expiration of the Commitments and the payment of all
indebtedness of the Borrower under the Loan Documents, provided that the
Borrower shall not have any liability under this Section to any Indemnified
Person with respect to indemnified liabilities which are determined by a final
and nonappealable judgment of a court of competent jurisdiction to have arisen
primarily from the gross negligence or willful misconduct of such Indemnified
Person.
11.11 Governing Law
The Loan Documents and the rights and obligations of the parties
thereto shall be governed by, and construed and interpreted in accordance with,
the laws of the State of New York, without regard to principles of conflict of
laws.
-63-
<PAGE>
11.12 Severability
Every provision of the Loan Documents is intended to be severable,
and if any term or provision thereof shall be invalid, illegal or unenforceable
for any reason, the validity, legality and enforceability of the remaining
provisions thereof shall not be affected or impaired thereby, and any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
11.13 Integration
All exhibits to the Loan Documents shall be deemed to be a part
thereof. Each Loan Document embodies the entire agreement and understanding
between or among the parties thereto with respect to the subject matter thereof
and supersedes all prior agreements and understandings between or among the
parties thereto with respect to the subject matter thereof.
11.14 Treatment of Certain Information
Each Lender, the Issuer and the Administrative Agent agrees to
maintain as confidential and not to disclose, publish or disseminate to any
third parties any financial or other information relating to the business,
operations and condition, financial or otherwise, of the Borrower provided to
it, except if and to the extent that:
(a) such information is in the public domain at the time of
disclosure;
(b) such information is required to be disclosed by subpoena or
similar process or applicable law or regulations;
(c) such information is required or requested to be disclosed to any
regulatory or administrative body or commission to whose jurisdiction it
may be subject;
(d) such information is disclosed to its counsel, auditors or other
professional advisors;
(e) such information is disclosed to (and, unless and until it
receives written objection from the Borrower, the Borrower shall be deemed
to have consented to disclosure of such information to) its affiliates;
provided that such information shall be used in connection with this
Agreement and the transactions contemplated hereby;
(f) such information is disclosed to its officers, directors and
employees;
(g) such information is disclosed with the prior written consent of
the party furnishing the information;
(h) such information is disclosed in connection with any litigation
or dispute involving the Borrower and/or it;
-64-
<PAGE>
(i) such information is disclosed in connection with the sale of a
participation or other disposition by it of any of its interest in this
Agreement, provided that such information shall not be disclosed unless
and until the party to whom it shall be disclosed shall have agreed to
keep such information confidential as set forth herein;
(j) such information was in its possession or in its affiliate's
possession as shown by clear and convincing evidence prior to any of the
Borrower and/or any or the Borrower's representatives or agents furnishing
such information to it; or
(k) such information is received by it, without restriction as to
its disclosure or use, from a Person who, to its knowledge or reasonable
belief, was not prohibited from disclosing such information by any duty of
confidentiality.
Except to the extent prohibited or restricted by law or Governmental
Authority, each Lender shall notify the Borrower promptly of any disclosures of
information made by it as permitted pursuant to (h) above.
11.15 Acknowledgments
The Borrower acknowledges that (a) it has been advised by counsel in
the negotiation, execution and delivery of the Loan Documents, (b) by virtue of
the Loan Documents, none of the Administrative Agent, the Issuer, or any Lender
has any fiduciary relationship to the Borrower, and the relationship between the
Administrative Agent, the Issuer, and the Lenders, on the one hand, and the
Borrower, on the other hand, is solely that of debtor and creditor, and (c) by
virtue of the Loan Documents, no joint venture exists among the Lenders or among
the Borrower and the Lenders.
11.16 Consent to Jurisdiction
The Borrower irrevocably submits to the non-exclusive jurisdiction
of any New York State or Federal Court sitting in the City of New York over any
suit, action or proceeding arising out of or relating to the Loan Documents. The
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in such a court and any claim that any
such suit, action or proceeding brought in such a court has been brought in an
inconvenient forum. The Borrower agrees that a final judgment in any such suit,
action or proceeding brought in such a court, after all appropriate appeals,
shall be conclusive and binding upon it.
11.17 Service of Process
The Borrower agrees that process may be served against it in any
suit, action or proceeding referred to in Section 11.16 by sending the same by
first class mail, return receipt requested or by overnight courier service, with
receipt acknowledged, to the address of the Borrower set forth in Section 11.2.
The Borrower agrees that any such service (i) shall be deemed in every respect
effective service of process upon it in any such suit, action, or proceeding,
and (ii) shall to the fullest extent enforceable by law, be taken and held to be
valid personal service upon and personal delivery to it.
-65-
<PAGE>
11.18 No Limitation on Service or Suit
Nothing in the Loan Documents or any modification, waiver, or
amendment thereto shall affect the right of the Administrative Agent, the Issuer
or any Lender to serve process in any manner permitted by law or limit the right
of the Administrative Agent, the Issuer or any Lender to bring proceedings
against the Borrower in the courts of any jurisdiction or jurisdictions.
11.19 WAIVER OF TRIAL BY JURY
THE ADMINISTRATIVE AGENT, THE ISSUER, THE LENDERS AND THE BORROWER
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE
ADMINISTRATIVE AGENT, THE ISSUER, OR THE LENDERS, OR COUNSEL TO THE
ADMINISTRATIVE AGENT, THE ISSUER, OR THE LENDERS, HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE ADMINISTRATIVE AGENT, THE ISSUER, OR THE LENDERS WOULD NOT,
IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY
TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT, THE
ISSUER, AND THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER
ALIA, THE PROVISIONS OF THIS SECTION.
11.20 Effective Date
This Agreement shall be effective at such time (the "Effective
Date") as the Administrative Agent shall have received executed counterparts
hereof by the Borrower, the Administrative Agent, the Issuer, and each Lender
and the conditions set forth in Sections 5.1 through 5.6 have been or
simultaneously will be satisfied, provided that this Agreement shall not become
effective or be binding on any party hereto unless all of such conditions are
satisfied not later than June 15, 1997.
-66-
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Agreement to be
executed on its behalf.
CVS CORPORATION
By: /s/ Philip C. Galbro
---------------------------------------
Name: Philip C. Galbro
-------------------------------------
Title: Vice President and Treasurer
------------------------------------
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE BANK OF NEW YORK, in its capacity
as a Lender and in its capacity
as the Administrative Agent
By: /s/ Howard F. Bascom, Jr.
---------------------------------------
Name: Howard F. Bascom, Jr.
-------------------------------------
Title: Vice President
------------------------------------
- 2 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Robert L. Barrett
---------------------------------------
Name: Robert L. Barrett
-------------------------------------
Title: Vice President
------------------------------------
- 3 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
FLEET NATIONAL BANK
By: /s/ Thomas J. Bullard
---------------------------------------
Name: Thomas J. Bullard
-------------------------------------
Title: Vice President
------------------------------------
- 4 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
BANKBOSTON, N.A.
By: /s/ Peter L. Griswold
---------------------------------------
Name: Peter L. Griswold
-------------------------------------
Title: Director
------------------------------------
- 5 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By: /s/ Patrick D. Bonebrake
---------------------------------------
Name: Patrick D. Bonebrake
-------------------------------------
Title: Assistant Vice President
------------------------------------
- 6 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
BANCA POPOLARE DI MILANO
By: /s/ Anthony Franco
---------------------------------------
Name: Anthony Franco
-------------------------------------
Title: Executive Vice President
& General Manager
------------------------------------
By: /s/ [ILLEGIBLE]
---------------------------------------
Name: [ILLEGIBLE]
-------------------------------------
Title: First Vice President
------------------------------------
- 7 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
BANK OF AMERICA ILLINOIS
By: /s/ Dale Robert Mason
---------------------------------------
Name: Dale Robert Mason
-------------------------------------
Title: Vice President
------------------------------------
- 8 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE BANK OF NOVA SCOTIA
By: /s/ [ILLEGIBLE]
---------------------------------------
Name: [ILLEGIBLE]
-------------------------------------
Title: Authorized Signatory
------------------------------------
- 9 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE CHASE MANHATTAN BANK
By: /s/ Neil R. Boylan
---------------------------------------
Name: Neil R. Boylan
-------------------------------------
Title: Vice President
------------------------------------
- 10 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
CORESTATES BANK, N.A.
By: /s/ Thomas I. McDonnell
---------------------------------------
Name: Thomas I. McDonnell
-------------------------------------
Title: Vice President
------------------------------------
- 11 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Robert Ivosevich
---------------------------------------
Name: Robert Ivosevich
-------------------------------------
Title: Authorized Signature
------------------------------------
- 12 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
CREDIT SUISSE FIRST BOSTON
By: /s/ Joel Glodowski
---------------------------------------
Name: Joel Glodowski
-------------------------------------
Title: Managing Director
------------------------------------
By: /s/ Chris Hargan
---------------------------------------
Name: Chris Hargan
-------------------------------------
Title: Vice President
------------------------------------
- 13 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: /s/ Mark M. Harden
---------------------------------------
Name: Mark M. Harden
-------------------------------------
Title: Vice President
------------------------------------
- 14 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
KEY BANK NATIONAL ASSOCIATION
By: /s/ Marianne T. Mail
---------------------------------------
Name: Marianne T. Mail
-------------------------------------
Title: Vice President
------------------------------------
- 15 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
PNC BANK, N.A.
By: /s/ Patrick H. Kinzler
---------------------------------------
Name: Patrick H. Kinzler
-------------------------------------
Title: Vice President
------------------------------------
- 16 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE SUMITOMO BANK, LIMITED
By: /s/ John C. Kissinger
---------------------------------------
Name: John C. Kissinger
-------------------------------------
Title: Joint General Manager
------------------------------------
- 17 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ Henry H. Hagan
---------------------------------------
Name: Henry H. Hagan
-------------------------------------
Title: SVP
------------------------------------
- 18 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
CRESTAR BANK
By: /s/ Julian N. Holland, Jr.
---------------------------------------
Name: Julian N. Holland, Jr.
-------------------------------------
Title: Vice President
------------------------------------
- 19 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE DAI-ICHI KANGYO BANK, LTD.,
New York Branch
By: /s/ Kim P. Leary
---------------------------------------
Name: Kim P. Leary
-------------------------------------
Title: Vice President
------------------------------------
- 20 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
FIRST HAWAIIAN BANK
By: /s/ Scott Nahme
---------------------------------------
Name: Scott Nahme
-------------------------------------
Title: Assistant Vice President
------------------------------------
- 21 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE FUJI BANK, LIMITED
By: /s/ Kazuaki Kirabatake
---------------------------------------
Name: Kazuaki Kirabatake
-------------------------------------
Title: Senior Vice President
------------------------------------
- 22 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
MELLON BANK, N.A.
By: /s/ Maribeth Donnelly
---------------------------------------
Name: Maribeth Donnelly
-------------------------------------
Title: Vice President
------------------------------------
- 23 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE SAKURA BANK, LIMITED
By: /s/ Yasumasa Kikuchi
---------------------------------------
Name: Yasumasa Kikuchi
-------------------------------------
Title: Senior Vice President
------------------------------------
- 24 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
SUNTRUST BANK, ATLANTA
By: /s/ James D. McQueen, III
---------------------------------------
Name: James D. McQueen, III
-------------------------------------
Title: Banking Officer
------------------------------------
By: /s/ [ILLEGIBLE]
[ILLEGIBLE]
Vice President & Manager
- 25 -
<PAGE>
CVS CORPORATION
Five Year Credit Agreement
THE SANWA BANK, LIMITED
By: /s/ Yutaka Higashino
---------------------------------------
Name: Yutaka Higashino
-------------------------------------
Title: Senior Vice President
------------------------------------
- 26 -
<PAGE>
EXHIBIT A
LIST OF COMMITMENTS, APPLICABLE LENDING OFFICES
AND ADDRESSES FOR NOTICES
A. LIST OF COMMITMENTS
Lender Commitment Amount
- ----------------- -----------------
THE BANK OF NEW YORK $ 50,250,000
MORGAN GUARANTY TRUST COMPANY 41,875,000
OF NEW YORK
FLEET NATIONAL BANK 41,875,000
BANKBOSTON, N.A. 26,800,000
BANK OF TOKYO-MITSUBISHI TRUST COMPANY 26,800,000
BANCA POPOLARE DI MILANO 26,800,000
BANK OF AMERICA ILLINOIS 26,800,000
THE BANK OF NOVA SCOTIA 26,800,000
THE CHASE MANHATTAN BANK 26,800,000
CORESTATES BANK, N.A. 26,800,000
CREDIT LYONNAIS NEW YORK BRANCH 26,800,000
CREDIT SUISSE FIRST BOSTON 26,800,000
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA 26,800,000
KEY BANK NATIONAL ASSOCIATION 26,800,000
PNC BANK, N.A. 26,800,000
THE SUMITOMO BANK, LIMITED 26,800,000
WACHOVIA BANK OF GEORGIA, N.A. 26,800,000
CRESTAR BANK 20,100,000
THE DAI-ICHI KANGYO BANK, LTD., 20,100,000
NEW YORK BRANCH
FIRST HAWAIIAN BANK 20,100,000
THE FUJI BANK, LIMITED 20,100,000
<PAGE>
MELLON BANK, N.A. 20,100,000
THE SAKURA BANK, LIMITED 20,100,000
SUNTRUST BANK, ATLANTA 20,100,000
THE SANWA BANK, LIMITED 20,100,000
TOTAL $670,000,000
<PAGE>
B. LIST OF APPLICABLE LENDING OFFICES AND ADDRESSES FOR NOTICES
THE BANK OF NEW YORK
Applicable Lending Office for each Eurodollar Advance :
The Bank of New York
One Wall Street
New York, NY 10286
Applicable Lending Office for all other Advances:
The Bank of New York
One Wall Street
New York, NY 10286
Address for Notices:
The Bank of New York
One Wall Street
22nd Floor
New York, NY 10286
Attention: Howard F.Bascom,
Vice President
Telephone: (212) 635-7894
Facsimile: (212) 635-1481
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
Applicable Lending Office for each Eurodollar Advance :
Morgan Guaranty Trust Company
of New York
Nassau Bahamas Office
c/o J.P. Morgan Services, Inc.
Loan Operations - 3rd Floor
500 Stanton Christiana Road
Newark, Delaware 19713
Applicable Lending Office for all other Advances:
Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, New York 10260-0060
Address for Notices:
Morgan Guaranty Trust Company
of New York
Nassau Bahamas Office
c/o J.P. Morgan Services, Inc.
Loan Operations - 3rd Floor
500 Stanton Christiana Road
Newark, Delaware 19713
Attention: Victoria A. Fedele
Telephone: (302) 634-4225
Facsimile: (302) 634-1852
<PAGE>
FLEET NATIONAL BANK
Applicable Lending Office for each Eurodollar Advance:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02211
Attn: Christopher Kampe
Telephone: (617) 346-0238
Facsimile: (617) 346-0689
Applicable Lending Office for all other Advances:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02211
Attn: Christopher Kampe
Telephone: (617) 346-0238
Facsimile: (617) 346-0689
Address for Notices:
Fleet National Bank
One Federal Street
Boston, Massachusetts 02211
Attention: Thomas Bullard
Telephone: (617) 346-0146
Facsimile: (617) 346-0580
<PAGE>
BANKBOSTON , N.A.
Applicable Lending Office for each Eurodollar Advance :
BankBoston, N.A.
100 Federal Street, 01-09-05
Boston, Massachusetts 02100
Applicable Lending Office for all other Advances:
BankBoston, N.A.
100 Federal Street, 01-09-05
Boston, Massachusetts 02100
Address for Notices:
BankBoston, N.A.
100 Federal Street, 01-09-05
Boston, Massachusetts 02100
Attention: Judith C.E. Kelly
Telephone: (617) 434-5280
Facsimile: (617) 434-0630
<PAGE>
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
Applicable Lending Office for each Eurodollar Advance :
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10020
Applicable Lending Office for all other Advances:
Bank of Tokyo-Mitsubishi Trust Company
1251 Avenue of the Americas
New York, New York 10020
Address for Notices:
Bank of Tokyo-Mitsubishi Trust Company
125 Summer Street, Suite 1170
Boston, Massachusetts 02110
Attention: Patrick Bonebrake
Telephone: (617) 330-7437
Facsimile: (617) 330-7422
<PAGE>
BANCA POPOLARE DI MILANO
Applicable Lending Office for each Eurodollar Advance :
Banca Popolare Di Milano
375 Park Avenue
New York, New York 10152
Applicable Lending Office for all other Advances:
Banca Popolare Di Milano
375 Park Avenue
New York, New York 10152
Address for Notices:
Banca Popolare Di Milano
375 Park Avenue
New York, New York 10152
Attention: Fulvio Montanari
Telephone: (212) 758-5040
Facsimile: (212) 838-1077
<PAGE>
BANK OF AMERICA ILLINOIS
Applicable Lending Office for each Eurodollar Advance :
Bank of America Illinois
231 S. LaSalle Street
Chicago, Illinois 60697
Applicable Lending Office for all other Advances:
Bank of America Illinois
231 S. LaSalle Street
Chicago, Illinois 60697
Address for Notices:
Bank of America Illinois
231 S. LaSalle Street
Chicago, Illinois 60697
Attention: Jody Pritchard
Telephone: (312) 828-5258
Facsimile: (312) 974-0732
<PAGE>
THE BANK OF NOVA SCOTIA
Applicable Lending Office for each Eurodollar Advance :
The Bank of Nova Scotia
Atlanta Agency
600 Peachtree Street, Suite 2700
Atlanta, Georgia 30308
Applicable Lending Office for all other Advances:
The Bank of Nova Scotia
Atlanta Agency
600 Peachtree Street, Suite 2700
Atlanta, Georgia 30308
Address for Notices:
The Bank of Nova Scotia
101 Federal Street, 16th Floor
Boston, Massachusetts 02100
Attention: Michael Bradley
Telephone: (617) 737-6312
Facsimile: (617) 951-2177
<PAGE>
THE CHASE MANHATTAN BANK
Applicable Lending Office for each Eurodollar Advance:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Applicable Lending Office for all other Advances:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Address for Notices:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Neil Boylan
Telephone: (212) 270-1410
Facsimile: (212) 270-1474
<PAGE>
CORESTATES BANK, N.A.
Applicable Lending Office for each Eurodollar Advance :
Corestates Bank, N.A.
P.O. Box 7618
Philadelphia, PA 19101
Applicable Lending Office for all other Advances:
Corestates Bank, N.A.
P.O. Box 7618
Philadelphia, PA 19101
Address for Notices:
Corestates Bank, N.A.
1345 Chestnut Street
Philadelphia, PA 19102
Attention: Thomas J. McDonnell
Telephone: (215) 973-7667
Facsimile: (215) 973-7820
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
Applicable Lending Office for each Eurodollar Advance :
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Applicable Lending Office for all other Advances:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Address for Notices:
Credit Lyonnais New York Branch
1301 Avenue of the Americas
New York, New York 10019
Attention: Heidi Rosen
Telephone: (212) 261-7241
Facsimile: (212) 459-3179
<PAGE>
CREDIT SUISSE FIRST BOSTON
Applicable Lending Office for each Eurodollar Advance :
Credit Suisse First Boston
11 Madison Avenue, 19th Floor
New York, New York 10010
Applicable Lending Office for all other Advances:
Credit Suisse First Boston
11 Madison Avenue, 19th Floor
New York, New York 10010
Address for Notices:
Credit Suisse First Boston
11 Madison Avenue, 19th Floor
New York, New York 10010
Attention: Joel Glodowski
Telephone: (212) 325-9171
Facsimile: (212) 325-8309
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
Applicable Lending Office for each Eurodollar Advance :
First Union National Bank of North Carolina
One First Union Center
301 South College Street, DC5
Charlotte, North Carolina 28288-0745
Applicable Lending Office for all other Advances:
First Union National Bank of North Carolina
One First Union Center
301 South College Street, DC5
Charlotte, North Carolina 28288-0745
Address for Notices:
First Union National Bank of North Carolina
One First Union Center
301 South College Street, DC5
Charlotte, North Carolina 28288-0745
Attention: Chris Klos
Telephone: (704) 383-7629
Facsimile: (704) 383-0634
<PAGE>
KEY BANK NATIONAL ASSOCIATION
Applicable Lending Office for each Eurodollar Advance :
Key Bank National Association
127 Public Square
Cleveland, Ohio 44114
Applicable Lending Office for all other Advances:
Key Bank National Association
127 Public Square
Cleveland, Ohio 44114
Address for Notices:
Key Bank National Association
127 Public Square
Cleveland, Ohio 44114
Attention: Marianne Meil
Telephone: (216) 689-3549
Facsimile: (216) 689-4981
<PAGE>
PNC BANK, N.A.
Applicable Lending Office for each Eurodollar Advance :
PNC Bank, N.A.
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Applicable Lending Office for all other Advances:
PNC Bank, N.A.
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Address for Notices:
PNC Bank, N.A.
2 Tower Center
East Brunswick, New Jersey 08816
Attention: Michael Richards
Telephone: (908) 220-3228
Facsimile: (908) 220-3231
<PAGE>
THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH
Applicable Lending Office for each Eurodollar Advance :
The Sumitomo Bank, Limited, New York Branch
277 Park Avenue
New York, New York 10172
Applicable Lending Office for all other Advances:
The Sumitomo Bank, Limited, New York Branch
277 Park Avenue
New York, New York 10172
Address for Notices:
The Sumitomo Bank, Limited, New York Branch
277 Park Avenue
New York, New York 10172
Attention: Thomas Miressi
Telephone: (212) 224-____
Facsimile: (212) 224-5188
<PAGE>
WACHOVIA BANK OF GEORGIA, N.A.
Applicable Lending Office for each Eurodollar Advance :
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Applicable Lending Office for all other Advances:
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Address for Notices:
Wachovia Bank of Georgia, N.A.
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attention: Jeffrey S. Nurkiewiez
Telephone: (404) 332-1288
Facsimile: (404) 332-6898
<PAGE>
CRESTAR BANK
Applicable Lending Office for each Eurodollar Advance :
Crestar Bank
919 E. Main Street, 22nd Floor
Richmond, Virginia 23219
Applicable Lending Office for all other Advances:
Crestar Bank
919 E. Main Street, 22nd Floor
Richmond, Virginia 23219
Address for Notices:
Crestar Bank
919 E. Main Street, 22nd Floor
Richmond, Virginia 23219
Attention: Julian N. Holland, Jr.
Telephone: (804) 782-7346
Facsimile: (804) 782-5413
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD., NEW YORK BRANCH
Applicable Lending Office for each Eurodollar Advance :
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, New York 10048
Applicable Lending Office for all other Advances:
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, New York 10048
Address for Notices:
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, New York 10048
Attention: Kim Leary
Telephone: (212) 432-6641
Facsimile: (212) 912-1879
<PAGE>
FIRST HAWAIIAN BANK
Applicable Lending Office for each Eurodollar Advance :
First Hawaiian Bank
999 Bishop Street, 11th Floor
Honolulu, Hawaii 96813
Applicable Lending Office for all other Advances:
First Hawaiian Bank
999 Bishop Street, 11th Floor
Honolulu, Hawaii 96813
Address for Notices:
First Hawaiian Bank
999 Bishop Street, 11th Floor
Honolulu, Hawaii 96813
Attention: Scott R. Nahme
Telephone: (808) 525-8781
Facsimile: (808) 525-6372
<PAGE>
THE FUJI BANK, LIMITED
Applicable Lending Office for each Eurodollar Advance :
The Fuji Bank, Limited
New York Branch
Two World Trade Center
New York, New York 10048
Applicable Lending Office for all other Advances:
The Fuji Bank, Limited
New York Branch
Two World Trade Center
New York, New York 10048
Address for Notices:
The Fuji Bank, Limited
New York Branch
Two World Trade Center
New York, New York 10048
Attention: Chigusa Tada
Telephone: (212) 898-2067
Facsimile: (212) 912-0516
<PAGE>
MELLON BANK, N.A.
Applicable Lending Office for each Eurodollar Advance :
Mellon Bank, N.A.
Three Mellon Bank Center, Room 305
Pittsburgh, PA 15259
Applicable Lending Office for all other Advances:
Mellon Bank, N.A.
Three Mellon Bank Center, Room 305
Pittsburgh, PA 15259
Address for Notices:
Mellon Bank, N.A.
Three Mellon Bank Center, Room 305
Pittsburgh, PA 15259
Attention: Manuel Burgueno
Telephone: (412) 234-6798
Facsimile: (412) 236-1914
<PAGE>
THE SAKURA BANK, LIMITED
Applicable Lending Office for each Eurodollar Advance :
The Sakura Bank, Ltd
New York Branch
277 Park Avenue - 46th Floor
New York, New York 10172
Applicable Lending Office for all other Advances:
The Sakura Bank, Ltd
New York Branch
277 Park Avenue - 46th Floor
New York, New York 10172
Address for Notices:
The Sakura Bank, Ltd
New York Branch
277 Park Avenue - 46th Floor
New York, New York 10172
Attention: Takehiro Matsamoto
Telephone: (212) 756-6745
Facsimile: (212) 888-7651
<PAGE>
SUNTRUST BANK, ATLANTA
Applicable Lending Office for each Eurodollar Advance :
SunTrust Bank, Atlanta
25 Park Place
Atlanta, Georgia 30303
Attention: Kathy Dorsey
Telephone: (404) 588-8375
Facsimile: (404) 658-4905
Applicable Lending Office for all other Advances:
SunTrust Bank, Atlanta
25 Park Place
Atlanta, Georgia 30303
Attention: Kathy Dorsey
Telephone: (404) 588-8375
Facsimile: (404) 658-4905
Address for Notices:
SunTrust Bank, Atlanta
711 Fifth Avenue - 16th Floor
New York, New York 10022
Attention: Jamie McQueen
Telephone: (212) 583-2611
Facsimile: (212) 371-9386
<PAGE>
THE SANWA BANK, LIMITED
Applicable Lending Office for each Eurodollar Advance :
The Sanwa Bank, Limited
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Applicable Lending Office for all other Advances:
The Sanwa Bank, Limited
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Address for Notices:
The Sanwa Bank, Limited
One Financial Center, Suite 2812
Boston, MA 02111
Attention: Dale C. Edmunds
Telephone: (617) 654-1430
Facsimile: (617) 350-7212
<PAGE>
EXHIBIT B-1
FORM OF REVOLVING CREDIT NOTE
$______________. _________ __, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, CVS CORPORATION, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
_________________________ (the "Lender") the lesser of $_________________ or the
outstanding principal balance of the Lender's Revolving Credit Loans, together
with interest thereon, at the rate or rates, in the amounts and at the time or
times set forth in the Five Year Credit Agreement (as the same may be amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
dated as of __________, 1997, by and among the Borrower, the Lenders party
thereto, Fleet National Bank, as Documentation Agent, JP Morgan Securities Inc.,
as Syndication Agent, and The Bank of New York, as the administrative agent (in
such capacity, the "Administrative Agent"), in each case at the office of the
Administrative Agent located at One Wall Street, New York, New York, or at such
other place as the Administrative Agent may specify from time to time, in lawful
money of the United States of America in immediately available funds.
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
The Revolving Credit Loans evidenced by this Revolving Credit Note
are prepayable in the amounts, and on the dates, set forth in the Credit
Agreement. This Revolving Credit Note is one of the Revolving Credit Notes under
the Credit Agreement, and is subject to, and shall be construed in accordance
with, the provisions thereof, and is entitled to the benefits set forth in the
Loan Documents.
The Lender is hereby authorized to record on the schedule annexed
hereto, and any continuation sheets which the Lender may attach thereto (a) the
date and amount of each Revolving Credit Loan made by the Lender, (b) the
character of each Revolving Credit Loan as one or more ABR Advances, one or more
Eurodollar Advances, or a combination thereof, (c) the Interest Period and
Eurodollar Rate applicable to each Eurodollar Advance, and (d) the date and
amount of each Conversion of, and each payment or prepayment of principal of,
each Revolving Credit Loan. The failure to so record or any error in so
recording shall not affect the obligation of the Borrower to repay the Revolving
Credit Loans, together with interest thereon, as provided in the Credit
Agreement.
Except as specifically otherwise provided in the Credit Agreement,
the Borrower hereby waives presentment, demand, notice of dishonor, protest,
notice of protest and all other demands, protests and notices in connection with
the execution, delivery, performance, collection and enforcement of this
Revolving Credit Note.
This Revolving Credit Note is being delivered in, is intended to be
performed in, shall be construed and interpreted in accordance with, and be
governed
<PAGE>
by the internal laws of, the State of New York, without regard to principles of
conflict of laws.
This Revolving Credit Note may only be amended by an instrument in
writing executed pursuant to the provisions of Section 11.1 of the Credit
Agreement.
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
- 2 -
<PAGE>
SCHEDULE TO REVOLVING CREDIT NOTE
<TABLE>
<CAPTION>
Type of Amount of
Advance Interest Eurodollar Conversion
Amount of (Eurodollar Period (If Rate (If or Principal
Revolving or ABR Eurodollar Eurodollar Payment or Notation
Date Credit Loan Advance) Advance) Advance) Prepayment Made by
- ---- ----------- ----------- ---------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B-2
FORM OF COMPETITIVE BID NOTE
_________ __, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, CVS CORPORATION, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of
_________________________ (the "Lender") the outstanding principal balance of
the Lender's Competitive Bid Loans, together with the interest due thereon, in
the amounts, at the rate or rates, and at the time or times set forth in the
Five Year Credit Agreement (as the same may be amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), dated as of
__________, 1997, by and among the Borrower, the Lenders party thereto, Fleet
National Bank, as Documentation Agent, JP Morgan Securities Inc., as Syndication
Agent, and The Bank of New York, as administrative agent (in such capacity, the
"Administrative Agent"), in each case at the office of the Administrative Agent
located at One Wall Street, New York, New York, or at such other place as the
Administrative Agent may specify from time to time, in lawful money of the
United States of America in immediately available funds.
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
This Competitive Bid Note is one of the Competitive Bid Notes under
the Credit Agreement, and is subject to, and shall be construed in accordance
with, the provisions thereof, and is entitled to the benefits set forth in the
Loan Documents.
The Lender is hereby authorized to record on the schedule annexed
hereto, and any continuation sheets which the Lender may attach thereto (a) the
date and amount of each Competitive Bid Loan made by the Lender, (b) the
Competitive Interest Period and the Competitive Bid Rate applicable to each such
Competitive Bid Loan, and (c) the date and amount of each payment or prepayment
of principal of each Competitive Bid Loan. The failure to so record or any error
in so recording shall not affect the obligation of the Borrower to repay the
Competitive Bid Loans, together with interest thereon, as provided in the Credit
Agreement.
Except as specifically otherwise provided in the Credit Agreement,
the Borrower hereby waives presentment, demand, notice of dishonor, protest,
notice of protest and all other demands, protests and notices in connection with
the execution, delivery, performance, collection and enforcement of this
Competitive Bid Note.
This Competitive Bid Note is being delivered in, is intended to be
performed in, shall be construed and interpreted in accordance with, and be
governed by the internal laws of, the State of New York, without regard to
principles of conflict of laws.
<PAGE>
This Competitive Bid Note may only be amended by an instrument in
writing executed pursuant to the provisions of Section 11.1 of the Credit
Agreement.
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
- 2 -
<PAGE>
SCHEDULE TO COMPETITIVE BID NOTE
Amount of
Amount of Competitive Principal
Competitive Interest Competitive Payment or Notation
Date Bid Loan Period Bid Rate Prepayment Made by
- ---- ----------- ----------- ----------- ---------- --------
<PAGE>
EXHIBIT B-3
FORM OF SWING LINE NOTE
$50,000,000. _________ __, 1997
New York, New York
FOR VALUE RECEIVED, the undersigned, CVS CORPORATION, a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of THE BANK OF
NEW YORK (the "Lender") the lesser of $50,000,000 or the outstanding principal
balance of the Lender's Swing Line Loans, together with interest thereon, at the
rate or rates, in the amounts and at the time or times set forth in the Five
Year Credit Agreement (as the same may be amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), dated as of __________,
1997, by and among the Borrower, the Lenders party thereto, Fleet National Bank,
as Documentation Agent, JP Morgan Securities Inc., as Syndication Agent, and The
Bank of New York, as administrative agent (in such capacity, the "Administrative
Agent"), in each case at the office of the Administrative Agent located at One
Wall Street, New York, New York, or at such other place as the Administrative
Agent may specify from time to time, in lawful money of the United States of
America in immediately available funds.
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
The Swing Line Loans evidenced by this Swing Line Note are
prepayable in the amounts, and on the dates, set forth in the Credit Agreement.
This Swing Line Note is the Swing Line Note under the Credit Agreement, and is
subject to, and shall be construed in accordance with, the provisions thereof,
and is entitled to the benefits set forth in the Loan Documents.
The Lender is hereby authorized to record on the schedule annexed
hereto, and any continuation sheets which the Lender may attach thereto (a) the
date and amount of each Swing Line Loan made by the Lender, (b) the Swing Line
Interest Period and Negotiated Rate applicable to each Swing Line Loan, and (c)
the date and amount of each payment or prepayment of principal of each Swing
Line Loan. The failure to so record or any error in so recording shall not
affect the obligation of the Borrower to repay the Swing Line Loans, together
with interest thereon, as provided in the Credit Agreement.
Except as specifically otherwise provided in the Credit Agreement,
the Borrower hereby waives presentment, demand, notice of dishonor, protest,
notice of protest and all other demands, protests and notices in connection with
the execution, delivery, performance, collection and enforcement of this Swing
Line Note.
This Swing Line Note is being delivered in, is intended to be
performed in, shall be construed and interpreted in accordance with, and be
governed by the internal laws of, the State of New York, without regard to
principles of conflict of laws.
<PAGE>
This Swing Line Note may only be amended by an instrument in writing
executed pursuant to the provisions of Section 11.1 of the Credit Agreement.
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
- 2 -
<PAGE>
SCHEDULE TO SWING LINE NOTE
Amount of
Swing Interest Negotiated Notation
Date Line Loan Period Rate Made by
- ---- --------- -------- ---------- --------
<PAGE>
EXHIBIT C
FORM OF BORROWING REQUEST
[Date]
The Bank of New York, as Administrative Agent
One Wall Street
New York, New York 10286
Attention: ______________,
______________
Re: Five Year Credit Agreement, dated as of ___________, 1997, by
and among CVS Corporation, the Lenders party thereto, Fleet
National Bank, as Documentation Agent, JP Morgan Securities
Inc., as Syndication Agent, and The Bank of New York, as
Administrative Agent (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 2.3 of the Credit Agreement, the Borrower hereby
gives notice of its intention to borrow Revolving Credit Loans in the aggregate
sum of $____________ on ____________, and/or a Swing Line Loan in the sum of
$____________ on ____________, which borrowing shall consist of the following
type or types of Advances:
Type of
Advance(s) (ABR,
Eurodollar or
Swing Line) Amount Interest Period
- ---------------- ------ ---------------
The Borrower hereby certifies that on the Borrowing Date set forth
above, and after giving effect to the Loans requested hereby:
(a) The Borrower shall be in compliance with all of the terms,
covenants and conditions of each Loan Document.
(b) There shall exist no Default or Event of Default.
<PAGE>
(c) The representations and warranties contained in the Credit
Agreement shall be true and correct, except those which are expressly specified
to be made as of an earlier date.
IN EVIDENCE of the foregoing, the undersigned has caused this Borrowing
Request to be duly executed on its behalf.
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
- 2 -
<PAGE>
EXHIBIT D
FORM OF OPINION OF
COUNSEL TO THE BORROWER
In connection with the Five Year Credit Agreement, dated as of
____________, 1997, by and among CVS Corporation, the Lenders party thereto,
Fleet National Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent (the
"Credit Agreement"), set forth below are the opinions to be included in the
opinion letter referred to in Section 5.4 of the Credit Agreement (collectively,
the "Opinions"). Capitalized terms used in the Opinions and which are not
otherwise defined therein shall have the respective meanings ascribed thereto in
the Credit Agreement.
Opinions:
1. Each of the Borrower and the Subsidiaries is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation (except, in the case of the Subsidiaries, where the
failure to be in such good standing could not reasonably be expected to have a
Material Adverse effect), has all requisite corporate power and authority to own
its Property and to carry on its business as now conducted, and is qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which it owns or leases real Property or in which the nature of
its business requires it to be so qualified (except those jurisdictions where
the failure to be so qualified or to be in good standing could not reasonably be
expected to have a Material Adverse effect).
2. The Borrower has full corporate power and authority to enter into,
execute, deliver and perform the terms of the Loan Documents and to consummate
the CVS/Revco Merger in accordance with the CVS/Revco Merger Documents, all of
which have been duly authorized by all proper and necessary corporate action and
are not in contravention of its Certificate of Incorporation and By-Laws. No
consent or approval of, or other action by, shareholders of the Borrower, any
Governmental Authority or any other Person (which has not already been obtained)
is required to authorize in respect of the Borrower, or is required in
connection with the execution, delivery and performance by the Borrower, of the
Loan Documents or in connection with the consummation of the CVS/Revco Merger,
or is required as a condition to the enforceability of the Loan Documents
against the Borrower or as a condition to the CVS/Revco Merger.
3. The Loan Documents constitute the valid and legally binding obligations
of the Borrower, enforceable in accordance with their respective terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditors' rights
generally and by equitable principles, whether considered in a proceeding at law
or in equity, and except to the extent that indemnification obligations may be
limited by federal or state securities laws or public policy relating thereto.
<PAGE>
4. Except as set forth on Schedule 4.4 to the Credit Agreement, to the
best of my/our knowledge, there are no actions, suits, arbitration proceedings
or claims (whether purportedly on behalf of the Borrower, any Subsidiary or
otherwise) pending or threatened against the Borrower or any Subsidiary or any
of their respective Properties, or maintained by the Borrower or any Subsidiary,
at law or in equity, before any Governmental Authority which could reasonably be
expected to have a Material Adverse effect. To the best of my/our knowledge,
there are no proceedings pending or threatened against the Borrower or any
Subsidiary (a) which call into question the validity or enforceability of, or
otherwise seek to invalidate, any Loan Document or invalidate or prevent the
consummation of the CVS/Revco Merger, or (b) which might, individually or in the
aggregate, materially and adversely affect any of the transactions contemplated
by any Loan Document or materially and adversely affect the CVS/Revco Merger.
5. To the best of my/our knowledge, neither the Borrower nor any
Subsidiary is in default under any agreement to which it is a party or by which
it or any of its Property is bound the effect of which could reasonably be
expected to have a Material Adverse effect. No notice to, or filing with, any
Governmental Authority is required for the due execution, delivery and
performance by the Borrower of the Loan Documents or to effect the CVS/Revco
Merger, except for notices and filings required in connection with the CVS/Revco
Merger which have been given and made.
6. No provision of any statute, rule, regulation, or, to the best of
my/our knowledge, any existing material mortgage, material indenture, material
contract, material agreement, judgment, decree or order, in each case binding on
the Borrower or any Subsidiary or affecting the Property of the Borrower or any
Subsidiary conflicts with, or requires any consent which has not already been
obtained under, or would in any way prevent the execution, delivery or
performance by the Borrower of the terms of, any Loan Document or the CVS/Revco
Merger. To the best of my/our knowledge, the execution, delivery or performance
by the Borrower of the terms of each Loan Document and the consummation of the
CVS/Revco Merger will not constitute a default under, or result in the creation
or imposition of, or obligation to create, any Lien upon the Property of the
Borrower or any Subsidiary pursuant to the terms of any such mortgage,
indenture, contract or agreement.
7. To the best of my/our knowledge, neither the Borrower nor any
Subsidiary is in default with respect to any judgment, order, writ, injunction,
decree or decision of any Governmental Authority which default could reasonably
be expected to have a Material Adverse effect. To the best of my/our knowledge,
the Borrower and each Subsidiary is complying with all applicable statutes,
rules and regulations of all Governmental Authorities, a violation of which
could reasonably be expected to have a Material Adverse effect. To the best of
my/our knowledge, the Borrower and each Subsidiary has filed or caused to be
filed with all Governmental Authorities all reports, applications, documents,
instruments and information required to be filed pursuant to all applicable
laws, rules, regulations and requests which, if not so filed, could reasonably
be expected to have a Material Adverse effect.
8. Neither the Borrower or any Subsidiary, nor any corporation controlling
the Borrower or any Subsidiary or under common control with the Borrower or any
Subsidiary, is subject to regulation under the Investment Company Act of 1940,
as
- 2 -
<PAGE>
amended, or is subject to any statute or regulation which regulates the
incurrence of Indebtedness.
9. The Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended. If used in accordance with
Section 2.5 of the Credit Agreement, no part of the proceeds of the Loans or the
Letters of Credit will be used, directly or indirectly, for a purpose which
violates the provisions of Regulations G, T, U or X of the Board of Governors of
the Federal Reserve System, as amended.
- 3 -
<PAGE>
EXHIBIT E
FORM OF OPINION OF
COUNSEL TO THE ADMINISTRATIVE AGENT
____________, 1997
TO THE LENDERS PARTY TO THE CREDIT
AGREEMENT (AS DEFINED BELOW)
Re: Five Year Credit Agreement, dated as of ________, 1997, by and among
CVS Corporation, the Lenders party thereto, Fleet National Bank, as
Documentation Agent, JP Morgan Securities Inc., as Syndication
Agent, and The Bank of New York, as Administrative Agent (the
"Agreement")
We have acted as Special Counsel to the Administrative Agent in connection
with the Agreement. Capitalized terms used herein that are not defined herein
shall have the respective meanings ascribed thereto in the Agreement.
We have examined originals or copies certified to our satisfaction of the
documents required to be delivered pursuant to the provisions of Section 5 of
the Agreement. In conducting such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity to originals of all documents submitted to us as
copies.
Based upon the foregoing examination, and (1) assuming with your
permission the accuracy of the opinion of _________________, _________ counsel
to the Borrower and (2) relying with your permission upon the representations
and warranties of the Borrower contained in the Agreement, we are of the opinion
that all legal preconditions to the effectiveness of the Agreement have been
satisfactorily met.
This opinion is rendered solely for your benefit in connection with the
transactions referred to herein and may not be relied upon by any other Person.
We express no opinion as to laws other than the laws of the State of New
York and the federal laws of the United States of America.
Very truly yours,
<PAGE>
EXHIBIT F
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
Assignment and Acceptance Agreement (as the same may be amended,
supplemented or otherwise modified from time to time, this "Agreement"), dated
as of ____________, by and between ____________ (the "Assignor") and
____________ (the "Assignee").
RECITALS
I. Reference is made to the Five Year Credit Agreement, dated as of
___________, 1997, by and among CVS Corporation, the Lenders party thereto,
Fleet National Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent (as the
same may be amended, supplemented or otherwise modified from time to time, the
"Credit Agreement").
II. The Assignor wishes to assign and delegate to the Assignee, and the
Assignee wishes to purchase and assume from the Assignor, some or all of the
Assignor's rights and obligations under the Loan Documents upon the terms, and
subject to the conditions, contained herein.
Therefore, in consideration of the Recitals, the terms and conditions
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Assignor and the Assignee
hereby agree as follows:
1. Defined Terms
(a) Each capitalized term used herein that is not defined herein
shall have the meaning ascribed thereto in the Credit Agreement.
(b) When used in this Agreement, each of the following capitalized
terms shall have the meaning ascribed thereto unless the context hereof
otherwise specifically requires:
"Assigned Percentage": _____%.
"Assignment Effective Date": as defined in Section 5.
"Assignor Rights and Obligations": as of the Assignment Effective
Date, the Assigned Percentage of all of the Assignor's rights and obligations
under the Loan Documents, including, without limitation, such percentage of
its Loans, its Commitment and its Notes.
"Purchase Price": an amount equal to the Assigned Percentage of the
aggregate unpaid principal amount of the Assignor's Loans as of the Assignment
Effective Date.
<PAGE>
2. Assignment; Payment by Assignee
The Assignor hereby assigns and delegates to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, without recourse or,
except as otherwise specifically provided herein, representation or warranty,
the Assignor Rights and Obligations. The Assignee agrees to pay to the Assignor
the Purchase Price on the Assignment Effective Date.
3. Representations and Warranties
(a) Assignor. The Assignor hereby represents and warrants to the
Assignee as follows:
(i) the aggregate unpaid principal amount of its Revolving Credit
Loans is $___________, and such Revolving Credit Loans are composed of the
following ABR Advances and Eurodollar Advances: (1) ABR Advances:
$__________, and (2) Eurodollar Advances: (A) $__________ for [length of
Interest Period], the last day of which is _______________, (B)
$__________ for [length of Interest Period], the last day of which is
_______________,
(ii) the aggregate unpaid principal amount of its Swing Line Loans
is $___________, and such Swing Line Loans are composed of the following:
(A) $__________ for [length of Swing Line Interest Period], the last day
of which is _______________, (B) $__________ for [length of Swing Line
Interest Period], the last day of which is _______________,
(iii) the aggregate unpaid principal amount of its Competitive Bid
Loans is $_________, and such Competitive Bid Loans are composed of the
following: (A) $__________ for [length of Competitive Interest Period],
the last day of which is _______________, (B) $__________ for [length of
Competitive Interest Period], the last day of which is _______________,
and
(iv) its Commitment Amount is $_______.
The Assignor makes no representation or warranty with respect to the
validity or enforceability of the Credit Agreement or any other Loan Document or
the financial condition or creditworthiness of the Borrower.
(b) Assignee. The Assignee hereby represents and warrants to the
Assignor that (i) it is legally authorized to enter into this Agreement, (ii) it
is an "accredited investor" within the meaning of Regulation D, as amended,
promulgated under the Securities Act of 1933, as amended, [and] (iii) it has,
independently and without reliance upon the Assignor or the Administrative
Agent, and based on such documents and information as it has deemed appropriate,
made its own evaluation of, and investigation into, the business, operations,
Property, financial and other condition and creditworthiness of the Borrower and
made its own decision to enter into this Agreement [, and (iv) it is a Lender or
a subsidiary or Affiliate of a Lender].
4. Covenants of the Assignee
The Assignee hereby covenants and agrees that it will, independently
and without reliance upon the Assignor or Administrative Agent, and based on
such
- 2 -
<PAGE>
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, evaluations and decisions in taking or not taking
action under the Loan Documents, and to make such investigation as it deems
necessary to inform itself as to the business, operations, Property, financial
and other condition and creditworthiness of the Borrower. The Assignee further
agrees to provide to the Administrative Agent any forms required by Section 3.10
of the Credit Agreement and any administrative questionnaire reasonably required
by the Administrative Agent.
5. Effectiveness of this Agreement
(a) Section 2 of this Agreement shall not become effective until
such date (the "Assignment Effective Date") as all of the following conditions
shall have been fulfilled:
(i) The Administrative Agent shall have executed a copy of this
Agreement and shall have received duly executed counterparts hereof by
each of the Assignor, the Assignee and, if required by the Credit
Agreement, the Borrower;
(ii) The Assignor shall have delivered to the Assignee (with a copy
to the Administrative Agent) a duly completed letter in the form of Annex
A hereto;
(iii) The Assignee shall have confirmed in writing to the Assignor
(with a copy to the Administrative Agent) that, on or before the
Assignment Effective Date, it shall have transferred (in accordance with
Section 6 hereof) the Purchase Price to the Assignor. At the time of such
confirmation, the Assignee shall be deemed to have remade the
representations and warranties contained in Section 3(b)(i), (ii) [and]
(iii) [, and (iv)] hereof on and as of the date of such confirmation;
(iv) The Administrative Agent shall have received, for its own
account, the assignment fee required to be paid pursuant to Section 11.7
of the Credit Agreement; and
(v) The Administrative Agent shall have received any forms required
by Section 3.10 of the Credit Agreement and any administrative
questionnaire reasonably required by the Administrative Agent.
(b) Upon the Assignment Effective Date, (i) the Administrative Agent
shall record the assignment contemplated hereby, (ii) the Assignee shall be a
Lender, and (iii) the Assignor, to the extent of the assignment provided for
herein, shall be released from its obligations under the Loan Documents.
(c) The Assignee hereby appoints and authorizes the Administrative
Agent to take such action, on and after the Assignment Effective Date, as agent
on its behalf and to exercise such powers under the Loan Documents as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are reasonably incidental thereto.
(d) From and after the Assignment Effective Date, the Administrative
Agent shall make all payments in respect of the interest assigned hereby
(including payments of principal, interest, fees and other amounts) to the
Assignee. The Assignor
- 3 -
<PAGE>
and the Assignee shall make all appropriate adjustments with respect to amounts
under the Loan Documents which accrued prior to the Assignment Effective Date,
and which were paid thereafter, directly between themselves.
6. Payment Instructions
All payments to be made to the Assignor by the Assignee hereunder
shall be made by wire transfer of immediately available funds to the Assignor
at: [Wire Instructions].
7. Notices
All notices, requests and demands to or upon the Assignee in
connection with this Agreement and the Loan Documents are to be sent or
delivered to the place set forth adjacent to its name on the signature page(s)
hereof.
8. Miscellaneous
(a) For purposes of this Agreement, all calculations and
determinations with respect to the outstanding principal amount of the
Assignor's Loans, the Assignor's Commitment Amount and all other similar
calculations and determinations, shall be made and shall be deemed to be made as
of the commencement of business on the date of such calculation or
determination, as the case may be.
(b) Section headings have been inserted herein for convenience only
and shall not be construed to be a part hereof.
(c) This Agreement embodies the entire agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes all other prior arrangements and understandings among the parties
hereto with respect to the subject matter hereof.
(d) This Agreement may be executed in any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same agreement. It shall not be necessary in making proof
of this Agreement to produce or account for more than one counterpart signed by
the party to be charged.
(e) Every provision of this Agreement is intended to be severable,
and if any term or provision hereof shall be invalid, illegal or unenforceable
for any reason, the validity, legality and enforceability of the remaining
provisions hereof shall not be affected or impaired thereby, and any invalidity,
illegality or unenforceability in any jurisdiction shall not affect the
validity, legality or enforceability of any such term or provision in any other
jurisdiction.
(f) This Agreement shall be binding upon and inure to the benefit of
the Assignor and the Assignee and their respective successors and permitted
assigns, except that neither party may assign or transfer any of its rights or
obligations hereunder (i) without the prior written consent of the other party,
and (ii) in contravention of the Credit Agreement.
- 4 -
<PAGE>
(g) This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and construed and interpreted in accordance
with, the internal laws of the State of New York without regard to principles of
conflicts of law.
- 5 -
<PAGE>
AS EVIDENCE of the agreement by the parties hereto to the terms and
conditions herein contained, each such party has caused this Agreement to be
duly executed on its behalf.
[NAME OF ASSIGNOR]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Address for notices: [NAME OF ASSIGNEE]
- ---------------------------- By:
-------------------------------
- ---------------------------- Name:
-----------------------------
- ---------------------------- Title:
----------------------------
Attention: _________
Telephone:_____________
Facsimile:_____________
Consented to and Accepted this __ day
of __________, ____
THE BANK OF NEW YORK, as Administrative Agent
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
[Consented to this __ day
of __________, ____
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title: ]
----------------------------
- 6 -
<PAGE>
ANNEX A TO ASSIGNMENT AND
ACCEPTANCE AGREEMENT
FORM OF LETTER
[Assignment Effective Date]
[Name and Address of Assignee]
Attention: _______________,
_______________
Re: Assignment and Acceptance Agreement, dated as of
_______________, by and between _______________ and
_______________ (as the same may be amended, supplemented or
otherwise modified from time to time, the "Agreement")
Ladies and Gentlemen:
This letter is being delivered pursuant to Section 5(a)(ii) of the
Agreement. Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Agreement.
The Assignor hereby represents and warrants to the Assignee as
follows:
(i) the aggregate unpaid principal amount of its Revolving Credit
Loans is $___________, and such Revolving Credit Loans are composed of the
following ABR Advances and Eurodollar Advances: (1) ABR Advances:
$__________, and (2) Eurodollar Advances: (A) $__________ for [length of
Interest Period], the last day of which is _______________, (B)
$__________ for [length of Interest Period], the last day of which is
_______________,
(ii) the aggregate unpaid principal amount of its Swing Line Loans
is $___________, and such Swing Line Loans are composed of the following:
(A) $__________ for [length of Swing Line Interest Period], the last day
of which is _______________, (B) $__________ for [length of Swing Line
Interest Period], the last day of which is _______________,
(iii) the aggregate unpaid principal amount of its Competitive Bid
Loans is $_________, and such Competitive Bid Loans are composed of the
following: (A) $__________ for [length of Competitive Interest Period],
the last day of which is _______________, (B) $__________ for [length of
Competitive Interest Period], the last day of which is _______________,
(iv) its Commitment Amount is $_______, and
<PAGE>
(v) it is the legal and beneficial owner of the Assignor Rights and
Obligations free and clear of any adverse claim created by it.
Very truly yours,
[NAME OF ASSIGNOR]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
cc: [Name and title
of Administrative Agent contact]
- 2 -
<PAGE>
EXHIBIT G
FORM OF COMPETITIVE BID REQUEST
[Date]
The Bank of New York, as Administrative Agent
One Wall Street
New York, New York 10286
Attention: ______________,
______________
Re: Five Year Credit Agreement, dated as of ___________, 1997, by and
among CVS Corporation, the Lenders party thereto, Fleet National
Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent
(as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 2.4 of the Credit Agreement, the Borrower hereby
gives notice of its request to borrow Competitive Bid Loans in the aggregate sum
of $____________ on ____________, which borrowing shall consist of the
following:
Competitive
Amount Interest Period
------ ---------------
The Borrower hereby certifies that on the Borrowing Date set forth
above, and after giving effect to the Competitive Bid Loans requested hereby:
(a) The Borrower shall be in compliance with all of the terms,
covenants and conditions of each Loan Document.
(b) There shall exist no Default or Event of Default.
<PAGE>
(c) The representations and warranties contained in the Credit
Agreement shall be true and correct, except those which are expressly specified
to be made as of an earlier date.
IN EVIDENCE of the foregoing, the undersigned has caused this Competitive
Bid Request to be duly executed on its behalf.
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
- 2 -
<PAGE>
EXHIBIT H
FORM OF INVITATION TO BID
[Date]
To the Lenders party
from time to time to the
captioned Credit Agreement
Re: Five Year Credit Agreement, dated as of ___________, 1997, by and
among CVS Corporation, the Lenders party thereto, Fleet National
Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent
(as amended, supplemented or otherwise modified from time to time,
"Credit Agreement")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
Pursuant to a Competitive Bid Request, the Borrower gave notice of
its request to borrow Competitive Bid Loans in the aggregate sum of
$____________ on ____________, which borrowing would consist of the following
type or types of Competitive Advances:
Competitive
Amount Interest Period
------ ---------------
The Lenders are hereby invited to bid, pursuant to the terms and
conditions of the Credit Agreement, on such requested Competitive Bid Loans.
THE BANK OF NEW YORK,
as Administrative Agent
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT I
FORM OF COMPETITIVE BID
[Date]
The Bank of New York, as Administrative Agent
One Wall Street
New York, New York 10286
Attention: _________________,
_________________
Re: Five Year Credit Agreement, dated as of ___________, 1997, by and
among CVS Corporation, the Lenders party thereto, Fleet National
Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent
(as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
In response to a Competitive Bid Request, the undersigned Lender
hereby offers to make Competitive Loan(s) in the aggregate sum of $____________
on ____________:
Comptetitive
Interest Competitive
Amount Period Bid Rate
------ ------------ -----------
[fixed rate]
[LENDER]
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT J
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Bank of New York, as Administrative Agent
One Wall Street
New York, New York 10286
Attention: ______________,
______________
Re: Five Year Credit Agreement, dated as of ___________, 1997, by and
among CVS Corporation, the Lenders party thereto, Fleet National
Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent
(as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 2.4(d) of the Credit Agreement, the Borrower
hereby gives notice of its acceptance of the following Competitive Bids:
------------- ---------------
------------- ---------------,
and its rejection of all other Competitive Bids, in each case made pursuant to
the Competitive Bid Request, dated _______________.
IN EVIDENCE of the foregoing, the undersigned has caused this Competitive
Bid Accept/Reject Letter to be duly executed on its behalf.
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT K
FORM OF LETTER OF CREDIT REQUEST
[Date]
The Bank of New York, as Administrative Agent
One Wall Street
New York, New York 10286
Attention: ______________,
______________
Re: Five Year Credit Agreement, dated as of ___________, 1997, by and
among CVS Corporation, the Lenders party thereto, Fleet National
Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent, and The Bank of New York, as Administrative Agent
(as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement")
Capitalized terms used herein that are not otherwise defined herein
shall have the respective meanings ascribed thereto in the Credit Agreement.
Pursuant to Section 2.8(b) of the Credit Agreement, the Borrower
hereby gives notice of its intention to have issued by the Issuer a Letter of
Credit for the account of the Borrower and for the benefit of
______________________ on ____________ in connection with
___________________________ in the maximum amount of $_______________. A drawing
may be made under such Letter of Credit under the following conditions:
_______________________________________________.
The Borrower hereby certifies that on the above requested date of
issuance of such Letter of Credit, and after giving effect to the issuance of
such Letter of Credit:
(a) The Borrower shall be in compliance with all of the terms,
covenants and conditions of each Loan Document.
(b) There shall exist no Default or Event of Default.
(c) The representations and warranties contained in the Credit
Agreement shall be true and correct, except those which are expressly specified
to be made as of an earlier date.
<PAGE>
IN EVIDENCE of the foregoing, the undersigned has caused this Letter of
Credit Request to be duly executed on its behalf.
CVS CORPORATION
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
- 2 -
<PAGE>
SCHEDULE 4.4
LIST OF LITIGATION
NONE
<PAGE>
SCHEDULE 8.2
LIST OF LIENS
NONE
<PAGE>
PREVIOUSLY DELIVERED TO EACH APPLICABLE LENDER
<PAGE>
CERTIFICATE OF SECRETARY
I, Zenon P. Lankowsky, Secretary of CVS Corporation, a Delaware
corporation (the "Borrower"), do hereby certify, in my capacity as Secretary of
the Borrower (and not in my individual capacity) pursuant to Section 5.I of the
Five Year Credit Agreement by and among the Borrower, the lenders party thereto,
Fleet National Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent and The Bank of New York, as Administrative Agent dated as of
May 23, 1997 (the "Credit Agreement") that:
1. Attached hereto as Exhibit A is a true and complete copy of the
Certificate of Incorporation of the Borrower as in full force and effect on the
date hereof.
2. Attached hereto as Exhibit B is a true and complete copy of the By-Laws
of the Borrower as in full force and effect on the date hereof.
3. Attached hereto as Exhibit C is a certificate of good standing of the
Secretary of State of the State of Delaware with respect to the Borrower as of
May 20, 1997.
4. Attached hereto as Exhibit D is a true and complete copy of resolutions
duly adopted by the Board of Directors of the Borrower at a meeting duly called
and held on May 27, 1997 at which meeting a quorum of said board was at all
times present in person and acting. All such resolutions are in full force and
effect on the date hereof in the form in which adopted and no other resolutions
have been adopted by the Board of Directors of the Borrower or any committee
thereof relating to the Credit Agreement, the CVS/Revco Merger and the
transactions referred to in such resolutions.
5. The following persons are duly qualified and acting officers of the
Borrower duly elected or appointed to the offices set forth opposite their
respective names, and each such person who, as an officer of the Borrower,
signed (i) the Credit Agreement, (ii) the Notes and (iii) any other document
delivered prior hereto or on the date hereof in connection with the borrowings
under the Credit Agreement, was duly elected or appointed, qualified and acting
as such
<PAGE>
officer at the respective times of such signing and delivery, and the
signatures of such persons appearing on such documents are their genuine
signatures.
Name Office
- ------------------------------------ ---------------------------------------
Stanley P. Goldstein Chairman and Chief Executive Officer
Thomas M. Ryan Vice Chairman and Chief Operating
Officer
Charles C. Conaway Executive Vice President and Chief
Financial Officer
Philip C. Galbo Vice President and Treasurer
Terms used in this Certificate and not defined have the meanings assigned to
them in the Credit Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of
the Borrower.
May 30, 1997
/s/ Zenon P. Lankowsky
------------------------------
Name: Zenon P. Lankowsky
Title: Secretary
2
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "CVS CORPORATION", FILED IN THIS OFFICE ON THE TWENTY-SECOND
DAY OF AUGUST, A.D. 1996, AT 4 O'CLOCK P.M.
[seal] -----------------------------------
Edward J. Freel, Secretary of State
2656078 B100 AUTHENTICATION: B474574
971164349
DATE: 5-20-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:00 PM 08/22/1996
960245972 - 2656079
CERTIFICATE OF INCORPORATION
OF
CVS CORPORATION
- - - - -
FIRST: The name of the Corporation is CVS Corporation.
SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended ("Delaware Law").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 100, and the par value of each such share is
$1.00, amounting in the aggregate to $100.
FIFTH: The name and mailing address of the incorporator are:
Name Mailing Address
---- ---------------
Carol F. Crossdale 450 Lexington Avenue
New York, New York 10017
The power of the incorporator as such shall terminate upon the filing of this
Certificate of Incorporation.
SIXTH: The names and mailing addresses of the persons who are to
serve as directors until the first annual meeting of stockholders or until their
successors are elected and qualified are:
Name Mailing Address
---- ---------------
Stanley Goldstein One CVS Drive
Woonsocket, RI 02895
<PAGE>
Thomas Ryan One CVS Drive
Woonsocket, RI 02895
SEVENTH: The Board of Directors shall have the power to adopt, amend
or repeal the bylaws of the Corporation.
EIGHTH: Election of directors need not be by written ballot unless
the bylaws of the Corporation so provide.
NINTH: (1) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by Delaware Law.
(2)(a) Each person (and the heirs, executors or administrators of
such person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by Delaware Law. The right to indemnification conferred in this ARTICLE NINTH
shall also include the right to be paid by the Corporation the expenses incurred
in connection with any such proceeding in advance of its final disposition to
the fullest extent authorized by Delaware law. The right to indemnification
conferred in this ARTICLE NINTH shall be a contract right.
(b) The Corporation may, by action of its Board of Directors,
provide indemnification to such of the employees and agents of the Corporation
to such extent and to such effect as the Board of Directors shall determine to
be appropriate and authorized by Delaware Law.
(3) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any expense, liability or loss
incurred by such person in any such capacity or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under Delaware Law.
(4) The rights and authority conferred in this ARTICLE NINTH shall
not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
(5) Neither the amendment nor repeal of this ARTICLE NINTH, nor the
adoption of any provision of this Certificate of Incorporation or the bylaws of
the
2
<PAGE>
Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE NINTH
in respect of any acts or omissions occurring prior to such amendment, repeal,
adoption or modification.
TENTH: The Corporation reserves the right to amend this Certificate
of Incorporation in any manner permitted by Delaware Law and, with the sole
exception of those rights and powers conferred under the above ARTICLE NINTH,
all rights and powers conferred herein on stockholders, directors and officers,
if any, are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto signed my name this 22nd day of
August, 1996.
/s/ Carol F. Crossdale
---------------------------
Carol F. Crossdale
3
<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"CVS CORPORATION", FILED IN THIS OFFICE ON THE FIFTEENTH DAY OF NOVEMBER, A.D.
1996, AT 12:30 O'CLOCK P.M.
[seal] -----------------------------------
Edward J. Freel, Secretary of State
2656078 B100 AUTHENTICATION: B74575
971164349
DATE: 5-20-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 12:30 PM 11/15/1996
960333880 - 2656079
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CVS CORPORATION
CVS Corporation, a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is "CVS Corporation" and the name under
which the Corporation was originally formed is "CVS Corporation." The original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on August 2, 1996.
2. This Amended and Restated Certificate of Incorporation (this "Restated
Certificate") has been duly adopted by the Board of Directors of the Corporation
in accordance with Sections 241 and 245 of the General Corporation Law of the
State of Delaware.
3. Pursuant to Sections 241 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation.
4. The text of the Certificate of Incorporation as heretofore amended is
hereby restated and further amended to read in its entirety as hereinafter set
forth:
FIRST: The name of the Corporation is "CVS Corporation".
SECOND: The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware as the same exists or may hereafter be amended
("Delaware Law").
FOURTH: The authorized capital stock of the corporation consists of (i)
300,000,000 shares of Common Stock, par value $.01 per share ("Common Stock"),
(ii)
<PAGE>
120,619 shares of Cumulative Preferred Stock, par value $.01 per share
("Preferred Stock"), and (iii) 50,000,000 shares of Preference Stock, par value
$1 per share ("Preference Stock").
All the designations, preferences, privileges and voting powers of the
shares of each class, and the restrictions or qualifications thereof, shall be
as follows:
I. Provisions Generally Applicable to Capital Stock
I.A. Voting Rights of Common Stock
Each holder of Common Stock shall be entitled to one vote for each share
thereof held of record by such holder.
I.B. Ranking of Capital Stock
The Preferred Stock shall be senior to the Preference Stock and the Common
Stock, and the Preference Stock and the Common Stock shall be subject to all the
rights and preferences of the Preferred Stock as hereafter set forth. The
Preference Stock shall be senior to the Common Stock, and the Common Stock shall
be subject to all the rights and preferences of the Preference Stock as
hereafter set forth.
I.C. No Preemptive Rights
No stockholder of the Corporation shall be entitled as such, as a matter
of right, to subscribe for or purchase any part of any new or additional issue
of stock of any class or series whatsoever, any rights or options to purchase
stock of any class or series whatsoever, whether now or hereafter authorized and
whether issued for cash or other consideration or by way of dividend.
I.D. Fractional Interests
In case any person shall become entitled to a fractional interest in a
share of Preferred Stock, of Preference Stock or of Common Stock, the
Corporation may deliver a scrip certificate representing such fractional
interest, which together with other similar scrip certificates aggregating a
whole share, may be surrendered in exchange for a stock certificate representing
one full share of Preferred Stock, Preference Stock or Common Stock as the case
may be; provided, however, that the rights of the holders of such scrip
certificates shall be subject to any conditions and limitations prescribed by
the Board of Directors, which may include a provision that after a specified
date the scrip certificate shall become absolutely void.
2
<PAGE>
II. Preferred Stock
II.A. Provisions Generally Applicable to Preferred Stock
II.A.(i) The Preferred Stock may be issued from time to time in
one or more series, the shares of each series to have such designations,
preferences, privileges, and voting powers, and the restrictions or
qualifications thereof, as are stated and expressed herein or in a resolution
or resolutions providing for the issue of such series adopted by the Board of
Directors as hereafter provided.
II.A.(ii) Authority is hereby expressly granted to the Board of
Directors, subject to the provisions of this Certificate and Delaware Law, to
authorize the issue of one or more series of Preferred Stock and with respect
to each such series to fix by resolution or resolutions providing for the
issue of such series:
(1) The number of shares of Preferred Stock which shall
comprise such series and the distinctive designation thereof;
(2) The dividend rate on the shares of such series (not
exceeding $6 a share per annum) and the date or dates from which dividends shall
accumulate;
(3) Whether or not the shares of such series shall be
subject to purchase and to redemption and the amount of premium, if any (not
exceeding $7 a share), which the holders of shares of such series shall be
entitled to receive over and above $100 a share and any accrued dividends
thereon upon the redemption thereof or upon the voluntary liquidation,
dissolution or winding up of the Corporation;
(4) Whether or not the shares of such series shall be subject
to the operation of a sinking fund to be applied to the purchase or redemption
of the shares of such series for retirement and, if such sinking fund be
established, the terms and provisions relative to the operation thereof;
(5) Whether or not the shares of such series shall be made
convertible into or exchangeable for any other class or classes or for any
other series of the same class of stock of the Corporation and, if made so
convertible or exchangeable, the conversion price or prices or rates of
exchange at which such conversion or exchange may be made and the method,
if any, of adjusting the same;
(6) The restrictions, if any, on the payment of dividends upon,
and the making of distributions to, any class of stock ranking junior to the
shares of Preferred Stock, and the restrictions, if any, on the purchase or
redemption of the shares of any such junior class; and
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(7) The voting rights, if any, of the shares of such series
other than those voting rights provided for in Section II.A. (viii) of this
Article Fourth.
II.A.(iii) All shares of any one series of Preferred Stock shall be
identical with each other in all respects except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon shall accumulate; and all series shall rank equally and be identical in
all respects except as permitted in the foregoing provisions of Section
II.A.(ii) of this Article Fourth.
II.A.(iv) The holders of shares of Preferred Stock of each series shall be
entitled to receive, when and as declared by the Board of Directors, dividends
payable in cash in, but not exceeding, the amount fixed for such series. Such
dividends shall be cumulative, so that if dividends on all outstanding Preferred
Stock of each series in the amount fixed therefor shall not have been paid or
declared and set apart for payment for all past dividend periods, and for the
dividend period current at the time, the deficiency shall be fully paid, or
dividends equal thereto declared and set apart for payment, but without interest
thereon, before any dividends on any class of stock of the Corporation junior to
the Preferred Stock shall be paid or declared and set apart for payment.
Dividends shall not be declared or paid on the Preferred Stock of any one
series for any dividend period unless dividends have been or are
contemporaneously paid or declared and set apart for payment on the Preferred
Stock of all series of the dividend periods terminating on the same and all
earlier dates.
Any dividend paid in an amount less than full cumulative dividends accrued
or in arrears on all Preferred Stock then outstanding shall be divided between
the outstanding Preferred Stock in proportion to the amounts which would be
distributable per share to the Preferred Stock if full cumulative dividends were
declared and paid thereon.
After full cumulative dividends as aforesaid upon the Preferred Stock of
all series then outstanding shall have been paid for all past dividend periods,
and full dividends on the Preferred Stock then outstanding for the current
dividend period shall have been declared and paid or set apart for payment, and
after complying with all the provisions with respect to any sinking fund or
funds for any one or more series of Preferred Stock, then, and not otherwise,
dividends may be declared and paid upon any class of stock of the Corporation
junior to the Preferred Stock.
II.A.(v) In the event of any liquidation, dissolution or winding up of the
Corporation the Preferred Stock shall be preferred as to assets as well as
dividends and upon any such dissolution, liquidation or winding up, the holders
of the Preferred Stock of each series shall be entitled to receive and be paid
for each share thereof out of the assets of the Corporation (whether capital or
surplus) $100, together with an amount equal to the accrued and unpaid dividends
thereon computed to the date of payment, plus a premium of such additional
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amount per share as shall have been fixed for such series in the event the
dissolution, liquidation or winding up is voluntary, before any distribution of
the assets shall be made to the holders of any class of stock of the Corporation
junior to the Preferred Stock. All assets remaining after such distribution to
the Preferred Stock shall then be distributed exclusively among the holders of
any class or classes of stock of the Corporation junior to the Preferred Stock.
If, upon any such dissolution, liquidation or winding up, the assets of the
Corporation distributable among the holders of Preferred Stock shall be
insufficient to pay in full the preferential amount aforesaid, then such assets
or the proceeds thereof shall be distributed ratably among the holders of
Preferred Stock then outstanding until there shall have been paid in full and in
order, first, the sum of $100 in respect of each share; second, an amount
ratably in proportion to the amounts to which they are respectively entitled by
reason of accrued and unpaid dividends computed to the date of distribution; and
third, the balance ratably in proportion to the amounts to which they are
respectively entitled by way of premium.
II.A.(vi) The Corporation, at its option to be exercised by its Board of
Directors, may redeem the whole or any part of any series of Preferred Stock
which by its terms is subject to redemption, at the time or times provided in
the terms of such series, at a redemption price per share for each series
thereof, equal to: $100 plus a premium, if any, of such additional amount as
shall have been fixed as payable in case of redemption in respect of each share
of such series and an amount equal to any accrued and unpaid dividends thereon
computed to the date of redemption. If at any time less than all of the
Preferred Stock then outstanding and subject to redemption shall be called for
redemption, the Board of Directors may select the series of such Preferred Stock
to be redeemed and if less than all the Preferred Stock of any series is to be
called for redemption, the shares to be redeemed may be selected by lot or by
such other equitable method as the Board of Directors in its discretion may
determine. Notice of every such redemption, stating the redemption date, the
redemption price, and the place of payment thereof, shall be given by mailing a
copy of such notice at least thirty (30) days and not more than sixty (60) days
prior to the date fixed for redemption to the holders of record of the Preferred
Stock to be redeemed at their respective addresses as the same appear on the
books of the Corporation. A similar notice shall be published at least once in a
daily newspaper printed in the English language and published and of general
circulation in the Borough of Manhattan, the City of New York. At any time after
notice of redemption has been given in the manner prescribed by the Board of
Directors to the holders of stock so to be redeemed the Corporation may deposit
with a bank or trust company having capital, surplus and undivided profits of at
least $5,000,000 named in such notice, the redemption price, in trust, for
payment on or before the date fixed for redemption, as aforesaid, to the
respective orders of the holders of the shares so to be redeemed, on such
endorsement to the Corporation or its nominee or otherwise, as may be required,
and upon surrender of the certificates for such shares. Upon the deposit of the
said redemption price as aforesaid, or, if no such deposit is made, upon the
said redemption date (unless the Corporation shall default in making payment of
the redemption price as set forth in such notice), such holders shall cease to
be stockholders with respect to the said shares, and from and after the making
of the said deposit, or, if no such deposit is made, after the redemption date
(the Corporation
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not having defaulted in making payment of the redemption price as set forth in
such notice), the said shares shall not longer be transferable on the books of
the Corporation, and the said holders shall have no interest in or claim against
the Corporation with respect to the said shares but shall be entitled only to
such conversion rights (if any) on or before the date fixed for redemption as
may be provided with respect to such shares or to receive payment of the
redemption price without interest thereon, upon endorsement, provided, that any
funds so deposited by the Corporation and unclaimed at the end of one year from
the date fixed for such redemption shall be repaid to the Corporation upon its
request, after which repayment the holders of such shares so called for
redemption shall look only to the Corporation for the payment of the redemption
price thereof. Any funds so deposited, which shall not be required for such
redemption because of the exercise of any right of conversion or otherwise
subsequently to the date of such deposit, shall be returned to the Corporation
forthwith. Any interest accrued on any funds so deposited shall belong to the
Corporation and shall be paid to it from time to time.
In order to facilitate the redemption of any shares of Preferred Stock,
the Board of Directors is authorized to cause the transfer books of the
Corporation to be closed as to the shares to be redeemed.
The Corporation shall have the right, provided full cumulative dividends
on the Preferred Stock shall have been paid for past dividend periods and
the Corporation shall not then be in default as to any payment required for any
sinking fund created with respect to any series of Preferred Stock, to purchase
Preferred Stock of any series which is subject to purchase by the terms of such
series, at prices not in excess of the then redemption price thererof, either
for the purpose of redemption or retirement or to be held, used and disposed of
as treasury shares.
II.A.(vii) If at any time the Corporation shall have failed to pay
dividends in full on the Preferred Stock, thereafter and until dividends in
full, including all accrued and unpaid dividends, on Preferred Stock outstanding
shall have been paid, or declared and set aside for payment, the Corporation
shall not redeem any Preferred Stock except as a whole and shall not purchase
any Preferred Stock except in accordance with a purchase offer made in writing
or by publication (as determined by the Board of Directors) to all holders of
the Preferred Stock upon the same terms as to any series, and shall not purchase
or redeem any other shares of any class ranking on a parity with or junior to
the Preferred Stock as to dividends or as to assets.
II.A.(viii) Special Voting Rights of Preferred Stock.
(1) The Corporation shall not, without the affirmative vote at a meeting,
or the written consent with or without a meeting, of the holders of at least
two-thirds of the then outstanding Preferred Stock of all series;
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(a) Change the express terms and provisions applicable to all series
of the Preferred Stock in any material respect prejudicial to the holders
thereof; or
(b) Create any class of stock which shall be preferred as to
dividends or as to assets over the Preferred Stock.
(2) The Corporation shall not, without the affirmative vote at a meeting,
or the written consent with or without a meeting, of the holders of at least
two-thirds of the outstanding Preferred Stock of any particular series, change
the express terms of the special provisions fur such series as provided in this
Certificate or in the resolution or resolutions of the Board of Directors
providing for the issue of such series in any material respect prejudicial to
the holders of shares of such series.
(3) The Corporation shall not without the affirmative vote at a meeting,
or the written consent with or without a meeting, of the holders of at least a
majority of the then outstanding Preferred Stock of all series, increase the
authorized number of shares of Preferred Stock or create any class of stock
which shall rank on a parity with the Preferred Stock as to dividends or as to
assets.
(4) If the Corporation shall have failed to pay dividends upon the
Preferred Stock in an aggregate amount equal to four full quarterly dividends on
any series of the Preferred Stock at the time outstanding, the holders of
Preferred Stock shall have the right, voting separately as a class at the annual
meeting of stockholders, to elect one-third (or the nearest number thereto) of
the members of the Board of Directors of the Corporation until such time as all
dividends accumulated on the Preferred Stock shall have been paid in full; and
upon such payment in full of all dividends accumulated on the Preferred Stock,
such special voting rights of holders thereof shall cease, subject to re-vesting
in the event of each and every subsequent default of the character above
mentioned.
III. Preference Stock
III.A. Provisions Generally Applicable to Preference Stock
III.A.(i) The Preference Stock may be issued from time to time by the
Board of directors as shares of one or more series. Subject to the provisions
hereof and the limitations prescribed by law, the Board of Directors is
expressly authorized, prior to issuance, by adopting resolutions providing for
the issuance of shares of any particular series and, if and to the extent from
time to time required by law, by filing a certificate pursuant to the Delaware
Law (or other laws hereafter in effect relating to the same or substantially
similar subject matter), to establish the number of shares to be included in
each such series and to fix the designations, relative rights, preferences and
limitations of the shares of each such series. The authority of the Board of
Directors with respect to each series shall include, but not be limited to,
determination of the following:
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(1) the distinctive serial designation of such series and the number of
shares constituting such series (provided that the aggregate number of shares
constituting all series of Preference Stock shall not exceed 50,000,000);
(2) the dividend rate, or basis for determining such rate, if any, on
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates;
(3) whether the shares of each series shall be redeemable and, if so, the
terms and conditions of such redemption, including the date or dates upon and
after which such shares shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(4) the obligation, if any, of the Corporation to retire shares of such
series pursuant to a sinking fund;
(5) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes or any other
series of the same class of stock and, if so, the terms and conditions of such
conversion or exchange, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any;
(6) whether the shares of such series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;
(7) the rights of the shares of such series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(8) the restrictions, if any, on the payment of dividends upon, and the
making of distributions to, any class of stock ranking junior to the shares of
Preference Stock, and the restrictions, if any, on the purchase or redemption of
the shares of any such junior class; and
(9) any other designations, relative rights, preferences and limitations
of such series.
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III.B. Series One ESOP Convertible Preference Stock
The number of shares, the designation, the relative rights, the
preferences and the limitations of the Series One ESOP Convertible Preference
Stock of the Corporation are as follows:
III.B.(i) Designation and Amount; Special Purpose Restricted Transfer
Issue
(1) The shares of this series of Preference Stock shall be designated as
Series One ESOP Convertible Preference Stock ("Series One Preference Stock") and
the number of shares constituting such series shall be 6,688,494.
(2) Shares of Series One Preference Stock shall be issued only to a
trustee acting on behalf of an employee stock ownership plan or other employee
benefit plan of the Corporation. In the event of any transfer of shares of
Series One Preference Stock to any person other than (a) the issuance of Series
One Preference Stock to any such plan trustee or (b) a distribution of Series
One Preference Stock by any such plan trustee to a participant in any such plan
in satisfaction of the distribution requirements of any such plan or any
investment elections provided to participants pursuant to any such plan, the
shares of Series One Preference Stock so transferred, upon such transfer
and without any further action by the Corporation or the holder, shall be
automatically converted into shares of Common Stock on the terms otherwise
provided for the conversion of shares of Series One Preference Stock into shares
of Common Stock pursuant to Section III.B.(v) hereof and no such transferee
shall have any of the voting powers, preferences and relative, participating,
optional or special rights ascribed to shares of Series One Preference Stock
hereunder but, rather, only the powers and rights pertaining to the Common Stock
into which such shares of Series One Preference Stock shall be so converted.
Certificates representing shares of Series One Preference Stock shall be
legended to reflect such restrictions on transfer. Notwithstanding the foregoing
provisions of this Section III.B.(i)(2), shares of Series One Preference Stock
(a) may be converted into shares of Common Stock as provided by Section
III.B.(v) hereof and the shares of Common Stock issued upon such conversion may
be transferred by the holder thereof as permitted by law and (b) shall be
redeemable by the Corporation upon the terms and conditions provided by Sections
III.B.(vi), (vii) and (viii) hereof.
III.B.(ii) Dividends and Distributions
(1) Subject to the provisions of adjustment hereinafter set forth, the
holders of shares of Series One Preference Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available therefor, cash dividends ("Preference Dividends") in an amount per
share equal to the greater of (a) the sum of the aggregate amounts of regular
cash dividends paid during the periods ending on December 31, 1989, October 31,
1990, October 31, 1991, October 31, 1992 and December 31, 1993 in each year
thereafter (each a "Dividend Payment Date") on the number of shares of Common
Stock into
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which one share of Series One Preference Stock could be converted pursuant to
Section III.B.(v) hereof, calculated on the basis of the Conversion Price (as
defined in Section III.B.(v) hereof and as adjusted from time to time pursuant
to Section III.B.(ix) hereof) in effect on each record date for any such regular
quarterly cash dividends on Common Stock paid during such one year period, and
(b) $3.90 per share per annum, and no more; provided that the first dividend on
the Series One Preference Stock shall be $3.63. For purposes of this Section
III.B.(ii)(1), "regular cash dividends" on the Common Stock shall mean any cash
dividends on the Common Stock which are not "Extraordinary Distributions" as
defined in Section III.B.(ix)(7). Preference Dividends shall be payable
annually, on each Dividend Payment Date, commencing on the Dividend Payment Date
in 1989, to holders of record at the start of business on such Dividend Payment
Date. Preference Dividends shall begin to accrue on outstanding shares of Series
One Preference Stock from the date of issuance of such shares of Series One
Preference Stock. The amount of Preference Dividends accrued as of any date on
each share of Series One Preference Stock shall be equal to the greater of (x)
the sum of the aggregate amounts of regular cash dividends paid during the
period beginning on the most current previous Dividend Payment Date and ending
on the date as of which accrual is being determined on the number of shares of
Common Stock into which one share of Series One Preference Stock could be
converted pursuant to Section III.B.(v) hereof, calculated as provided in clause
(a) above, and (y) $3.90 per annum accrued on a daily basis (whether or not the
Corporation shall have surplus at the time) for the period beginning on the most
recent previous Dividend Payment Date and ending on the date as of which accrual
is being determined, computed for any period less than a full annual period
between Dividend Payment Dates on the basis of a 360 day year of 30 day months;
provided that a total dividend payment of $3.63 per share shall accrue for the
period from the date of issuance of the Series One Preference Stock until
December 31, 1989. Accumulated but unpaid Preference Dividends shall cumulate as
of the Dividend Payment Date on which they first become payable, but no interest
shall accrue on accumulated but unpaid Preference Dividends.
(2) So long as any Series One Preference Stock shall be outstanding, no
dividend shall be declared or paid or set apart for payment on any other series
of stock ranking on a parity with the Series One Preference Stock as to
dividends, unless there shall also be or have been declared and paid or set
apart for payment on the Series One Preference Stock, like dividends for all
dividend payment periods of the Series One Preference Stock ending on or before
the dividend payment date of such parity stock, ratably in proportion to the
respective amounts of dividends accumulated and unpaid through such dividend
payment period on the Series One Preference Stock and accumulated and unpaid or
payable on such parity stock through the dividend payment period on such parity
stock next preceding such dividend payment date. In the event that full
cumulative dividends on the Series One Preference Stock have not been declared
and paid or set apart for payment when due, the Corporation shall not declare or
pay or set apart for payment any dividends or make any other distributions on,
or make any payment on account of the purchase, redemption or other retirement
of any other class of stock or series thereof of the Corporation ranking, as to
dividends or as to distributions in the event of a liquidation, dissolution or
winding-up of the Corporation, junior
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to the Series One Preference Stock until full cumulative dividends on the Series
One Preference Stock shall have been paid or declared and provided for,
provided, however, that the foregoing shall not apply to (a) any dividend
payable solely in any shares of any stock ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or winding-up of the
Corporation, junior to the Series One Preference Stock, or (b) the acquisition
of shares of any stock ranking, as to dividends or as to distributions in the
event of a liquidation, dissolution or winding-up of the Corporation, junior to
the Series One Preference Stock either (x) pursuant to any employee or director
incentive or benefit plan or arrangement (including any employment, severance or
consulting agreement) of the Corporation or any subsidiary of the Corporation
heretofore or hereafter adopted or (y) in exchange solely for shares of any
other stock ranking junior to the Series One Preference Stock.
III.B.(iii) Voting Rights
The holders of shares of Series One Preference Stock shall have the
following voting rights:
(1) The holders of Series One Preference Stock shall be entitled to vote
on all matters submitted to a vote of the holders of Common Stock of the
Corporation, voting together with the holders of Common Stock as one class. Each
share of the Series One Preference Stock shall be entitled to the number of
votes equal to the number of shares of Common Stock into which such share of
Series One Preference Stock could be converted on the record date for
determining the stockholders entitled to vote, rounded to the nearest one-tenth
of a vote; it being understood that whenever the "Conversion Price" (as defined
in Section III.B.(v) hereof) is adjusted as provided in Section III.B.(ix)
hereof, the voting rights of the Series One Preference Stock shall also be
similarly adjusted.
(2) Except as otherwise required by law or set forth herein, holders of
Series One Preference Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for the taking of any
corporate action; provided, however, that the vote of at least 66 2/3% of the
outstanding shares of Series One Preference Stock, voting separately as a
series, shall be necessary to adopt any alteration, amendment or repeal of any
provision of the Certificate of Incorporation of the Corporation, as amended
(including any such alteration, amendment or repeal effected by any merger or
consolidation in which the Corporation is the surviving or resulting
corporation), if such amendment, alteration or repeal would alter or change the
powers, preferences or special rights of the shares of Series One Preference
Stock so as to affect them adversely. The authorization or issuance of
additional Common Stock, Preference Stock or Preferred Stock shall be deemed not
to affect the powers, preferences and special rights of the Series One
Preference Stock adversely for purposes of the preceding sentence.
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III.B.(iv) Liquidation, Dissolution or Winding Up
(1) Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the holders of Series One Preference Stock shall be
entitled to receive out of assets of the Corporation which remain after
satisfaction in full of all valid claims of creditors of the Corporation and
which are available for payment to stockholders and subject to the rights of the
holders of any stock of the Corporation ranking senior to or on a parity with
the Series One Preference Stock in respect of distributions upon liquidation,
dissolution or winding up of the Corporation, before any amount shall be paid or
distributed among the holders of Common Stock or any other shares ranking junior
to the Series One Preference Stock in respect of distributions upon liquidation,
dissolution or winding up of the Corporation, liquidating distributions in the
amount of $53.45 per share, plus an amount equal to all accrued and unpaid
dividends thereon to the date fixed for distribution, and no more. If upon any
liquidation, dissolution or winding up of the Corporation, the amounts payable
with respect to the Series One Preference Stock and any other stock ranking as
to any such distribution on a parity with the Series One Preference Stock are
not paid in full, the holders of the Series One Preference Stock and such other
stock shall share ratably in any distribution of assets in proportion to the
full respective preferential amounts to which they are entitled. After payment
of the full amount to which they are entitled as provided by the foregoing
provisions of Section III.B.(iv)(1), the holders of shares of Series One
Preference Stock shall not be entitled to any further right or claim to any of
the remaining assets of the Corporation.
(2) Neither the merger or consolidation of the Corporation with or into
any other corporation, nor the merger or consolidation of any other corporation
with or into the Corporation, nor the sale, transfer or lease of all or any
portion of the assets of the Corporation, shall be deemed to be a dissolution,
liquidation or winding up of the affairs of the Corporation for purposes of this
Section III.B.(iv), but the holders of Series One Preference Stock shall
nevertheless be entitled in the event of any such merger or consolidation to the
rights provided by Section III.B.(viii) hereof.
(3) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, stating the payment date or dates
when, and the place or places where, the amounts distributable to holders of
Series One Preference Stock in such circumstances shall be payable, shall be
given by first-class mail, postage prepaid, mailed not less than twenty (20)
days prior to any payment date stated therein, to the holders of Series One
Preference Stock, at the address shown on the books of the Corporation or any
transfer agent for the Series One Preference Stock.
III.B.(v) Conversion into Common Stock
(1) A holder of shares of Series One Preference Stock shall be entitled,
at any time prior to the close of business on the date fixed for redemption of
such shares pursuant to Sections III.B.(vi), (vii) or (viii) hereof, to cause
any or all of such shares to be converted into
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shares of Common Stock, initially at a conversion rate equal to the ratio of
$53.45 to the amount which initially shall be $53.45 and which shall be adjusted
as hereinafter provided (and, as so adjusted, is hereinafter sometimes referred
to as the "Conversion Price") (that is, a conversion rate initially equivalent
to one share of Common Stock for each share of Series One Preference Stock so
converted but that is subject to adjustment as the Conversion Price is adjusted
as hereinafter provided.)
(2) Any holder of shares of Series One Preference Stock desiring to
convert such shares into shares of Common Stock shall surrender the certificate
or certificates representing the shares of Series One Preference Stock being
converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto), at the principal
executive office of the Corporation or the offices of the transfer agent for the
Series One Preference Stock or such office or offices in the continental United
States of an agent for conversion as may from time to time be designated by
notice to the holders of the Series One Preference Stock by the Corporation or
the transfer agent for the Series One Preference Stock, accompanied by written
notice of conversion. Such notice of conversion shall specify (a) the number of
shares of Series One Preference Stock to be converted and the name or names in
which such holder wishes the certificate or certificates for Common Stock and
for any shares of Series One Preference Stock not to be so converted to be
issued, and (b) the address to which such holder wishes delivery to be made of
such new certificates to be issued upon such conversion.
(3) Upon surrender of a certificate representing a share or shares of
Series One Preference Stock for conversion, the Corporation shall prepare and
send by hand delivery (with receipt to be acknowledged) or by first class mail,
postage prepaid, to the holder thereof or to such holder's designee, at the
address designated by such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing shares of Series One Preference Stock, only part of
which are to be converted, the Corporation shall issue and deliver to such
holder or such holder's designee a new certificate or certificates representing
the number of shares of Series One Preference Stock which shall not have been
converted.
(4) The conversion into Common Stock of shares of Series One Preference
Stock at the option of the holder thereof shall be effective as of the earlier
of (a) the delivery to such holder or such holder's designee of the certificates
representing the shares of Common Stock deliverable upon conversion thereof or
(b) the commencement of business on the second business day after the surrender
of the certificate or certificates for the shares of Series One Preference Stock
to be converted, duly assigned or endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating thereto) as provided by this
Section III.B.(v). On and after the effective day of conversion, the person or
persons entitled to receive the Common Stock deliverable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock, but no allowance or
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adjustment shall be made in respect of dividends payable to holders of Common
Stock in respect of any period prior to such effective date. The Corporation
shall not be obligated to pay any dividends which shall have been declared and
shall be payable to holders of shares of Series One Preference Stock on a
Dividend Payment Date if such Dividend Payment Date for such dividend shall
coincide with or be on or subsequent to the effective date of conversion of
such shares.
(5) The Corporation shall not be obligated to deliver to holders of Series
One Preference Stock any fractional share or shares of Common Stock deliverable
upon any conversion of such shares of Series One Preference Stock, but in lieu
thereof may make a cash payment in respect thereof in any manner permitted by
law.
(6) The Corporation shall at all times reserve and keep available out of
its authorized and unissued Common Stock, or out of Common Stock held in its
treasury, solely for delivery upon the conversion of shares of Series One
Preference Stock as herein provided, free from any preemptive rights, such
number of shares of Common Stock as shall from time to time be deliverable upon
the conversion of all the shares of Series One Preference Stock then
outstanding. The Corporation shall prepare and shall use its best efforts to
obtain and keep in force such governmental or regulatory permits or other
authorizations as may be required by law, and shall comply with all requirements
as to registration or qualification of the Common Stock, in order to enable the
Corporation lawfully to deliver to each holder of record of Series One
Preference Stock such number of shares of its Common Stock as shall from time to
time be sufficient to effect the conversion of all shares of Series One
Preference Stock then outstanding and convertible into shares of Common Stock.
III.B.(vi) Redemption At the Option of the Corporation
(1) The Series One Preference Stock shall be redeemable, in whole or in
part, at the option of the Corporation at any time at the following redemption
prices per share, except that no such redemption at the option of the
Corporation may be made prior to June 23, 1991 unless the Fair Market Value of
the Common Stock as of the date on which notice of redemption is first mailed
pursuant to Section III.B.(vi)(2) below shall be at least 130% of the then
current Conversion Price. The Fair Market Value of the Common Stock shall be
determined as provided in Section III.B.(ix)(7), except that for purposes of
this Section III.B.(vi)(1) the Adjustment Period used in calculating such Fair
Market Value shall be deemed to be the twenty (20) consecutive trading days
ending upon but excluding the date on which notice of redemption is first
mailed:
14
<PAGE>
<TABLE>
<CAPTION>
During the Twelve-Month
Period Beginning June 23 Price Per Share
----------------------- ---------------
<S> <C> <C>
1989 $57.35
1990 $56.96
1991 $56.57
1992 $56.18
1993 $55.79
1994 $55.40
1995 $55.01
1996 $54.62
1997 $54.23
1998 $53.84
</TABLE>
and thereafter at $53.45 per share, plus, in each case, an amount equal to all
accrued and unpaid dividends thereon to the date fixed for redemption. Payment
of the redemption price shall be made by the Corporation in cash or shares of
Common Stock or a combination thereof, as permitted by Section III.B.(vi)(4).
From and after the date fixed for redemption, dividends on Series One Preference
Stock called for redemption will cease to accrue, such shares will no longer be
deemed to be outstanding and all rights in respect of such shares of the
Corporation shall cease, except the right to receive the redemption price. If
less than all of the outstanding shares of Series One Preference Stock are to be
redeemed, the Corporation shall either redeem a portion of the shares of each
holder determined pro rata based on the number of shares held by each holder or
shall select the shares to be redeemed by lot, as may be determined by the Board
of Directors of the Corporation.
(2) Unless otherwise required by law, notice of redemption will be sent to
the holders of Series One Preference Stock at the address shown on the books of
the Corporation or any transfer agent for the Series One Preference Stock by
first class mail, postage prepaid, mailed not less than twenty (20) days nor
more than sixty (60) days prior to the redemption date. Each such notice shall
state: (a) the redemption date; (b) the total number of shares of the Series One
Preference Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (c) the redemption price and the form of payment thereof; (d) the place
or places where certificates for such shares are to be surrendered for payment
of the redemption price; (e) that dividends on the shares to be redeemed will
cease to accrue on such redemption date; and (f) the conversion rights of the
shares to be redeemed, the period within which conversion rights may be
exercised, and the Conversion Price and number of shares of Common Stock
issuable upon conversion of a share of the Series One Preference Stock at the
time. Upon surrender of the certificates for any shares so called for redemption
and not previously converted (properly endorsed or assigned for transfer if the
Board of Directors of the Corporation shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation on the date fixed for
redemption and at the redemption price set forth in this Section III.B.(vi).
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<PAGE>
(3) Notwithstanding anything to the contrary contained in Section
III.B.(vi)(1), the Corporation may from time to time, in its sole discretion,
elect to redeem, upon notice as required in Section III.B.(vi)(2), all or part
of the shares of Series One Preference Stock at a price equal to the amount
payable in respect of such shares upon liquidation of the Corporation pursuant
to Section III.B.(iv) hereof (except that any redemption pursuant to clause (d)
below shall be at a price equal to the price payable upon redemption at the
option of the Corporation pursuant to Section III.B.(vi)(1) plus all accrued and
unpaid dividends to the date fixed for redemption) upon any of the following:
(a) In the event of a change in the federal tax law of the United States
of America which has the effect of precluding the Corporation from
claiming any of the tax deductions for dividends paid on the Series One
Preference Stock when such dividends are used as provided under Section
404(k)(2) of the Internal Revenue code of 1986, as amended (the "Code")
and in effect on the date the shares of Series One Preference Stock are
initially issued; provided that notice of any redemption pursuant to this
clause (a) shall be given not more than 90 days following the later of the
effectiveness or the adoption of any such change in the federal tax law of
the United States of America; or
(b) In the event of a determination by the Internal Revenue Service that
the Melville Corporation and Subsidiaries Employee Stock Ownership Plan,
dated as of January 1, 1989, as amended, or any successor plan ("the
Plan"), as the same may be amended, is not qualified within the meaning of
Section 401(a) or is not an employee stock ownership plan within the
meaning of Section 4975(e)(7) of the Code; or
(c) If the exclusion of interest received by any lender on any borrowings
by the trustee of the Plan from the lender's income pursuant to Section
133 or any successor provision of the Code is reduced to a percentage
amount less than fifty percent (50%); provided that notice of any
redemption pursuant to this clause (c) shall be given not more than 90
days following the later of the effectiveness or the adoption of any such
reduction; or
(d) If the Corporation terminates the Plan or terminates future
contributions to the Plan; or
(e) If any shares of Series One Preference Stock are transferred to a
participant in the Plan, but only any such shares so transferred may be
redeemed pursuant to this clause (e); or
(f) In the event and to the extent that redemption of Series One
Preference Stock is necessary or appropriate to provide for satisfaction
of any investment election provided to participants in accordance with the
Plan; or
16
<PAGE>
(g) In the event and to the extent that redemption of Series One
Preference Stock is necessary or appropriate to provide for distributions
to be made to participants under the Plan.
(4) the Corporation, at its option, may make payment of the redemption
price required upon redemption of shares of Series One Preference Stock pursuant
to Section III.B.(vi)(1) above or clauses (a) through (f) of Section
III.B.(vi)(3) above in cash or in shares of Common Stock, or in a combination of
such shares and cash. The Corporation shall make payment of the redemption price
required upon redemption of shares of Series One Preference Stock pursuant to
clause (g) of Section III.B.(vi)(3) above in shares of Common Stock, except that
cash shall be paid in lieu of delivery of fractional shares. Any shares of
Common Stock delivered in payment of the redemption price pursuant to this
Section III.B.(vi) shall be valued for such purpose at their Fair Market Value
(as defined in Section III.B.(ix)(7) hereof, provided, however, that in
calculating their Fair Market Value the Adjustment Period shall be deemed to be
the five (5) consecutive trading days ending with, and including, the date of
redemption).
III.B.(vii) Other Redemption Rights
Shares of Series One Preference Stock shall be called for redemption by
the Corporation, through notice as required by Section III.B.(vi)(2), for cash
or, if the Corporation so elects, in shares of Common Stock, or a combination of
such shares and cash, any such shares of Common Stock to be valued for such
purpose as provided by Section III.B.(vi)(4), at a redemption price of $53.45
per share plus accrued and unpaid dividends thereon to the date fixed for
redemption, at any time and from time to time when and to the extent necessary
to provide for payment of principal, interest or premium due and payable
(whether as scheduled or upon acceleration) on the 8.60% ESOP Notes Due 2008 of
the trust under the Plan or an indebtedness incurred by the trustee for the
benefit of the Plan.
III.b.(viii) Consolidation, Merger, etc.
(1) In the event that the Corporation shall consummate any consolidation
or merger or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged solely for
or changed, reclassified or converted solely into stock of any successor or
resulting corporation (including the Corporation) that constitutes "qualifying
employer securities" with respect to a holder of Series One Preference Stock
within the meaning of Section 409(l) of the Code and Section 407(c)(5) of the
Employee Retirement Income Security Act of 1974, as amended, or any successor
provisions of law, and, if applicable, for a cash payment in lieu of fractional
shares, if any, the shares of Series One Preference Stock of such holder shall
be assumed by and shall become preferred stock of such successor or resulting
corporation, having in respect of such corporation insofar as possible the same
powers, preferences and relative, participating, optional or other special
rights (including the redemption rights provided by Sections III.B.(vi), (vii)
and (viii) hereof),
17
<PAGE>
and the qualifications, limitations or restrictions thereon, that the Series One
Preference Stock had immediately prior to such transaction, except that after
such transaction each share of the Series One Preference Stock shall be
convertible, otherwise on the terms and conditions provided by Section III.B.(v)
hereof, into the qualifying employer securities so receivable by a holder of the
number of shares of Common Stock into which such shares of Series One Preference
Stock could have been converted immediately prior to such transaction if such
holder of Common Stock failed to exercise any rights of election to receive any
kind or amount of stock, securities, cash or other property (other than such
qualifying employer securities and a cash payment, if applicable, in lieu of
fractional shares) receivable upon such transaction (provided that, if the kind
or amount of qualifying employer securities receivable upon such transaction is
not the same for each non-electing share, then the kind and amount of qualifying
employer securities receivable upon such transaction for each non-electing share
shall be the kind and amount so receivable per share by a plurality of the
non-electing shares). The rights of the Series One Preference Stock as preferred
stock of such successor or resulting company shall successively be subject to
adjustments pursuant to Section III.B.(ix) hereof after any such transaction as
nearly as possible equivalent to the adjustments provided for by such section
prior to such transaction. The Corporation shall not consummate any such merger,
consolidation or similar transaction unless all then outstanding shares of the
Series One Preference Stock shall be assumed and authorized by the successor or
resulting company as aforesaid.
(2) In the event that the Corporation shall consummate any consolidation
or merger or similar transaction, however named, pursuant to which the
outstanding shares of Common Stock are by operation of law exchanged for or
changed, reclassified or converted into other stock or securities or cash or any
other property, or any combination thereof, other than any such consideration
which is constituted solely of qualifying employer securities (as referred to in
Section III.B.(viii)(1)) and cash payments, if applicable, in lieu of fractional
shares, then the corporation shall, at least twenty (20) days before
consummation of such transaction, give notice of such agreement and the material
terms thereof to each holder of Series One Preference Stock and the Corporation
shall simultaneously call for redemption, through notice as required by Section
III.B.(vi)(2), for cash at a redemption price equal to the amount payable in
respect of such shares upon liquidation of the Corporation pursuant to Section
III.B.(iv), all of the then outstanding shares of Series One Preference Stock.
III.B.(ix) Anti-dilution Adjustments
(1) In the event the Corporation shall, at any time or from time to time
while any of the shares of the Series One Preference Stock are outstanding, (a)
pay a dividend or make a distribution in respect of the Common Stock in shares
of Common Stock, (b) subdivide the outstanding shares of Common Stock, or (c)
combine the outstanding shares of Common Stock into a smaller number of shares,
in each case whether by reclassification of shares, recapitalization of the
Corporation (including a recapitalization effected by a merger or consolidation
to which Section III.B.(viii) hereof does not apply), or otherwise, the
18
<PAGE>
Conversion Price in effect immediately prior to such action shall be adjusted by
multiplying such Conversion Price by the fraction the numerator of which is the
number of shares of Common Stock outstanding immediately before such event and
the denominator of which is the number of shares of Common Stock outstanding
immediately after such event. An adjustment made pursuant to this Section
III.B.(ix)(1) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall become effective immediately
as of the effective date thereof.
(2) In the event that the Corporation shall, at any time or from time to
time while any of the shares of Series One Preference Stock are outstanding,
issue to holders of shares of Common Stock as a dividend or distribution,
including by way of a reclassification of shares or a recapitalization of the
Corporation, any right or warrant to purchase shares of Common Stock (but not
including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock) at a purchase price per share less than
the Fair Market Value (as hereinafter defined) of a share of Common Stock on the
date of issuance of such right or warrant, then, subject to the provisions of
Sections III.B.(ix)(5) and III.B.(ix)(6), the Conversion Price shall be adjusted
by multiplying such Conversion Price by the fraction the numerator of which
shall be the number of shares of Common Stock outstanding immediately before
such issuance of rights or warrants plus the number of shares of Common Stock
which could be purchased at the Fair Market Value of a share of Common Stock at
that time of such issuance for the maximum aggregate consideration payable upon
exercise in full of all such rights or warrants and the denominator of which
shall be the number of shares of Common Stock outstanding immediately before
such issuance of rights or warrants plus the number of shares of Common Stock
that could be acquired upon exercise in full of all such rights and warrants.
(3) In the event the Corporation shall, at any time or from time to time
while any of the shares of Series One Preference Stock are outstanding, issue,
sell or exchange shares of Common Stock (other than pursuant to any right or
warrant to purchase or acquire shares of Common Stock (including as such a right
or warrant any security convertible into or exchangeable for shares of Common
Stock) and other than pursuant to any employee or director incentive or benefit
plan or arrangement, including any employment, severance or consulting
agreement, of the Corporation or any subsidiary of the Corporation heretofore or
hereafter adopted) for a consideration having a Fair Market Value on the date of
such issuance, sale or exchange less than the Fair Market Value of such shares
on the date of such issuance, sale or exchange, then, subject to the provisions
of Sections III.B.(ix)(5) and III.B.(ix)(6), the Conversion Price shall be
adjusted by multiplying such Conversion Price by the fraction the numerator of
which shall be the sum of (a) the Fair Market Value of all the shares of Common
Stock outstanding on the day immediately preceding the first public announcement
of such issuance, sale or exchange plus (b) the Fair Market Value of the
consideration received by the Corporation in respect of such issuance, sale or
exchange of shares of Common Stock, and the denominator of which shall be the
product of (a) the Fair
19
<PAGE>
Market Value of a share of Common Stock on the day immediately preceding the
first public announcement of such issuance, sale or exchange multiplied by (b)
the sum of the number of shares of Common Stock outstanding on such day plus the
number of shares of Common Stock so issued, sold or exchanged by the
Corporation. In the event the Corporation shall, at any time or from time to
time while any shares of Series One Preference Stock are outstanding, issue,
sell or exchange any right or warrant to purchase or acquire shares of Common
Stock (including as such a right or warrant any security convertible into or
exchangeable for shares of Common Stock), other than any such issuance to
holders of shares of Common Stock as a dividend or distribution (including by
way of reclassification of shares or a recapitalization of the Corporation) and
other than pursuant to any employee or director incentive or benefit plan or
arrangement (including any employment, severance or consulting agreement) of the
Corporation or any subsidiary of the Corporation heretofore or hereafter
adopted, for a consideration having a Fair Market Value on the date of such
issuance, sale or exchange less than the Non-Dilutive Amount (as hereinafter
defined), then, subject to the provisions of Sections III.B(ix)(5) and
III.B.(ix)(6), the Conversion Price shall be adjusted by multiplying such
Conversion Price by a fraction the numerator of which shall be the sum of (a)
the Fair Market Value of all the Shares of Common Stock outstanding on the day
immediately preceding the first public announcement of such issuance, sale or
exchange plus (b) the Fair Market Value of the consideration received by the
Corporation in respect of such issuance, sale or exchange of such right or
warrant plus (c) the Fair Market Value at the time of such issuance of the
consideration which the Corporation would receive upon exercise in full of all
such rights or warrants, and the denominator of which shall be the product of
(a) the Fair Market Value of a share of Common Stock on the day immediately
preceding the first public announcement of issuance, sale or exchange multiplied
by (b) the sum of the number of shares of Common Stock outstanding on such day
plus the maximum number of shares of Common Stock which could be acquired
pursuant to such right or warrant at the time of the issuance, sale or exchange
of such right or warrant (assuming shares of Common Stock could be acquired
pursuant to such right or warrant at such time).
(4) In the event the Corporation shall, at any time or from time to time while
any of the shares of Series One Preference Stock are outstanding, make an
Extraordinary Distribution (as hereinafter defined) in respect of the Common
Stock whether by dividend, distribution, reclassification of shares or
recapitalization of the Corporation (including a recapitalization or
reclassification effected by a merger or consolidation to which Section
III.B.(viii) hereof does not apply) or effect a Pro Rata Repurchase (as
hereinafter defined) of Common Stock, the Conversion Price in effect immediately
prior to such Extraordinary Distribution or Pro Rata Repurchase shall, subject
to Sections III.B.(ix)(5) and III.B.(ix)(6), be adjusted by multiplying such
Conversion Price by the fraction the numerator of which is (a) the product of
(x) the number of shares of Common Stock outstanding immediately before such
Extraordinary Distribution or Pro Rata Repurchase multiplied by (y) the Fair
Market Value (as herein defined) of a share of Common Stock on the record date
with respect to an Extraordinary Distribution, or on the applicable expiration
date (including all extensions thereof) of any tender offer which is a Pro Rata
Repurchase, or on the date of purchase with
20
<PAGE>
respect to any Pro Rata Repurchase which is not a tender offer, as the case may
be, minus (b) the Fair Market Value of the Extraordinary Distribution or the
aggregate purchase price of the Pro Rata Repurchase, as the case may be, and the
denominator of which shall be the product of (x) the number of shares of Common
Stock outstanding immediately before such Extraordinary Distribution or Pro Rata
Repurchase minus, in the case of a Pro Rata Repurchase, the number of shares of
Common Stock repurchased by the Corporation multiplied by (y) the Fair Market
Value of a share of Common Stock on the record date with respect to an
Extraordinary Distribution or on the applicable expiration date (including all
extensions thereof) of any tender offer which is a Pro Rata Repurchase or on the
date of purchase with respect to any Pro Rata Repurchase which is not a tender
offer, as the case may be. The Corporation shall send each holder of Series One
Preference Stock (a) notice of its intent to make any dividend or distribution
and (b) notice of any offer by the Corporation to make a Pro Rata Repurchase, in
each case at the same time as, or as soon as practicable after, such offer is
first communicated (including by announcement of a record date in accordance
with the rules of any stock exchange on which the Common Stock is listed or
admitted to trading) to holders of Common Stock. Such notice shall indicate the
intended record date and the amount and nature of such dividend or distribution,
or the number of shares subject to such offer for a Pro Rata Repurchase and the
purchase price payable by the Corporation pursuant to such offer, as well as the
Conversion Price and the number of shares of Common Stock into which a share of
Series One Preference Stock may be converted at such time.
(5) Notwithstanding any other provisions of this Section III.B.(ix), the
Corporation shall not be required to make any adjustment of the Conversion Price
unless such adjustment would require an increase or decrease of at least one
percent (1%) in the Conversion Price. Any lesser adjustment shall be carried
forward and shall be made no later than the time of, and together with, the next
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least one percent
(1%) in the Conversion Price.
(6) If the Corporation shall make any dividend or distribution on the
Common Stock or issue any Common Stock, other capital stock or other security of
the Corporation or any rights or warrants to purchase or acquire any such
security, which transaction does not result in an adjustment to the Conversion
Price pursuant to the foregoing provisions of this Section III.B.(ix), the Board
of Directors of the Corporation shall consider whether such action is of such a
nature that an adjustment to the Conversion price should equitably be made in
respect of such transaction. If in such case the Board of Directors of the
Corporation determines that an adjustment to the Conversion Price should be
made, an adjustment shall be made effective as of such date as is determined by
the Board of Directors of the Corporation. The determination of the Board of
Directors of the Corporation as to whether an adjustment to the Conversion Price
should be made pursuant to the foregoing provisions of this Section
III.B.(ix)(6), and, if so, as to what adjustment should be made and when, shall
be final and binding on the Corporation and all stockholders of the Corporation.
The Corporation shall be entitled to make such additional adjustments in the
Conversion Price, in addition to those
21
<PAGE>
required by the foregoing provisions of this Section III.B.(ix), as shall be
necessary in order that any dividend or distribution in shares of capital stock
of the Corporation, subdivision, reclassification or combination of shares of
stock of the Corporation or any recapitalization of the Corporation shall not be
taxable to holders of the Common Stock.
(7) For purposes of this Section III.B.(ix), the following definitions
shall apply:
"Extraordinary Distribution" shall mean any dividend or other distribution
(effected while any of the shares of Series One Preference Stock are
outstanding) (a) of cash, where the aggregate amount of such cash dividend or
distribution together with the amount of all cash dividends and distributions
made during the preceding period of 12 months, when combined with the aggregate
amount of all Pro Rata Repurchases (for this purpose, including only that
portion of the aggregate purchase price of such Pro Rata Repurchase which is in
excess of the Fair Market Value of the Common Stock repurchased as determined on
the applicable expiration date (including all extensions thereof) of any tender
offer or exchange offer which is a Pro Rata Repurchase, or the date of purchase
with respect to any other Pro Rata Repurchase which is not a tender offer or
exchange offer made during such period), exceeds twelve and one-half percent
(12-1/2%) of the aggregate Fair Market Value of all shares of Common Stock
outstanding on the record date for determining the stockholders entitled to
receive such Extraordinary Distribution and (b) of any shares of capital stock
of the Corporation (other than shares of Common Stock), other securities of the
Corporation (other than securities of the type referred to in Section
III.B.(ix)(2)), evidences of indebtedness of the Corporation or any other person
or any other property (including shares of any subsidiary of the Corporation),
or any combination thereof. The Fair Market Value of an Extraordinary
Distribution for purposes of Section III.B.(ix)(4) shall be the sum of the Fair
Market Value of such Extraordinary Distributions made during such twelve month
period and not previously included in the calculation of an adjustment pursuant
to Section III.B.(ix)(4).
"Fair Market Value" shall mean, as to shares of Common Stock or any other
class of capital stock or securities of the Corporation or any other issuer
which are publicly traded, the average of the Current Market Prices (as
hereinafter defined) of such shares or securities for each day of the Adjustment
Period (as hereinafter defined). "Current Market Price" of publicly traded
shares of Common Stock or any other class of capital stock or other security of
the Corporation or any other issuer for a day shall mean the last reported sales
price, regular way, or, in case no sale takes place on such day, the average of
the reported closing bid and asked prices, regular way, in either case as
reported on the New York Stock Exchange Composite Tape or, if such security is
not listed or admitted to trading on the New York Stock Exchange, on the
principal national securities exchange on which such security is listed or
admitted to trading or, if not listed or admitted to trading on any national
securities exchange on the NASDAQ National Market System or, if such security is
not quoted on such National Market System, the average of the closing bid and
asked prices on each such day in the over-the-counter market as reported by
NASDAQ or, if bid and asked prices for such
22
<PAGE>
security on each such day shall not have been reported through NASDAQ, the
average of the bid and asked prices for such day as furnished by any New York
Stock Exchange member firm regularly making a market in such security selected
for such purpose by the Board of Directors of the Corporation or a committee
thereof on each trading day during the Adjustment Period. "Adjustment Period"
shall mean the period of five (5) consecutive trading days, selected by the
Board of Directors of the Corporation or a committee thereof, during the 20
trading days ending with, and including, the date as of which the Fair Market
Value of a security is to be determined; provided that such period of five
consecutive trading days shall end prior to the date on which such security
begins to trade "ex dividend" with respect to any dividend or distribution
giving rise to an adjustment under this Section III.B.(ix). The "Fair Market
Value" of any security which is not publicly traded or of any other property
shall mean the fair value thereof as determined by an independent investment
banking or appraisal firm experienced in the valuation of such securities or
property selected in good faith by the Board of Directors of the Corporation or
a committee thereof, or, if no such investment banking or appraisal firm is in
the good faith judgment of the Board of Directors or such committee available to
make such determination, as determined in good faith by the Board of Directors
of the Corporation or such committee.
"Non-Dilutive Amount" in respect of an issuance, sale or exchange by the
Corporation of any right or warrant to purchase or acquire shares of Common
Stock (including any security convertible into or exchangeable for shares of
Common Stock) shall mean the remainder of (a) the product of the Fair Market
Value of a share of Common Stock on the day preceding the first public
announcement of such issuance, sale or exchange multiplied by the maximum number
of shares of Common Stock which could be acquired on such date upon the exercise
in full of such rights and warrants (including upon the conversion or exchange
of all such convertible or exchangeable securities), whether or not exercisable
(or convertible or exchangeable) at such date, minus (b) the aggregate amount
payable pursuant to such right or warrant to purchase or acquire such maximum
number of shares of Common Stock; provided, however, that in no event shall the
Non-Dilutive Amount be less than zero. For purposes of the foregoing sentence,
in the case of a security convertible into or exchangeable for shares of Common
Stock, the amount payable pursuant to a right or warrant to purchase or acquire
shares of Common Stock shall be the Fair Market Value of such security on the
date of the issuance, sale or exchange of such security by the Corporation.
"Pro Rata Repurchase" shall mean any purchase of shares of Common Stock by
the Corporation or any subsidiary thereof, whether for cash, shares of capital
stock of the Corporation, other securities of the Corporation, evidences of
indebtedness of the Corporation or any other person or any other property
(including shares of a subsidiary of the Corporation), or any combination
thereof, effected while any of the shares of Series One Preference Stock are
outstanding, pursuant to any tender offer or exchange offer subject to Section
13(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
or any successor provision of law, or pursuant to any other offer available to
substantially all holders of Common Stock; provided, however, that no purchase
of shares by the Corporation
23
<PAGE>
or any subsidiary thereof shall be deemed a Pro Rata Repurchase if made (a) in
open market transactions or (b) pursuant to a single tender offer subject to
Section 13(e) of the Securities Exchange Act commenced prior to December 31,
1989, but any purchase made in such a tender offer shall only be deemed not to
be a Pro Rata Repurchase to the extent that the aggregate amount used to
purchase Common Stock in such tender offer does not exceed $357,500,000. For
purposes of this subsection (ix)(7), shares shall be deemed to have been
purchased by the Corporation or any subsidiary thereof "in open market
transactions" if they have been purchased substantially in accordance with the
requirements of Rule 10b-18 as in effect under the Exchange Act, on the date
shares of Series One Preference Stock are initially issued by the Corporation or
on such other terms and conditions as the Board of Directors of the Corporation
or a committee thereof shall have determined are reasonably designed to prevent
such purchases from having a material effect on the trading market for the
Common Stock.
(8) Whenever an adjustment to the Conversion Price and the related voting
rights of the Series One Preference Stock is required pursuant to this Section
III.B.(ix), the Corporation shall forthwith place on file with the transfer
agent for the Common Stock and the Series One Preference Stock if there be one,
and with the Secretary of the Corporation, a statement signed by two officers of
the Corporation stating the adjusted Conversion Price determined as provided
herein and the resulting conversion ratio, and the voting rights (as
appropriately adjusted), of the Series One Preference Stock. Such statement
shall set forth in reasonable detail such facts as shall be necessary to show
the reason and the manner of computing such adjustment, including any
determination of Fair Market Value involved in such computation. Promptly after
each adjustment to the Conversion Price and the related voting rights of the
Series One Preference Stock, the Corporation shall mail a notice thereof and of
the then prevailing conversion ratio to each holder of shares of the Series One
Preference Stock.
III.B.(x) Banking: Retirement of Shares
(1) The Series One Preference Stock shall rank senior to the Common Stock
as to the payment of dividends and the distribution of assets on liquidation,
dissolution and winding up of the Corporation. The Series One Preference Stock
shall rank on a parity with all other series of the Corporation's Preference
Stock as to the payment of dividends and the distribution of assets on
liquidation, dissolution and winding up of the Corporation. Unless otherwise
provided in the Certificate of Incorporation of the Corporation, as amended, the
Series One Preference Stock shall rank junior to all other series of the
Corporation's Preferred Stock as to the payment of dividends and the
distribution of assets on liquidation, dissolution or winding up of the
Corporation.
(2) Any shares of Series One Preference Stock acquired by the Corporation
by reason of the conversion or redemption of such shares as provided by this
Section III.B., or otherwise so acquired, shall be retired as shares of Series
One Preference Stock and restored
24
<PAGE>
to the status of authorized but unissued shares of preference stock, $1.00 par
value, of the Corporation, undesignated as to series, and may thereafter be
reissued as part of a new series of such Preference Stock as permitted by law.
III.B.(xi) Miscellaneous
(1) All notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon the earlier of receipt thereof
or three (3) business days after the mailing thereof if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms of this Resolution) with postage prepaid, addressed: (a) if to the
Corporation, to its office as specified in its most recent Annual Report on Form
10-K (or any successor report or form) or to the transfer agent for the Series
One Preference Stock, or other agent of the Corporation designated as permitted
by this Section III.B. or (b) if to any holder of the Series One Preference
Stock or Common Stock, as the case may be, to such holder at the address of such
holder as listed in the stock record books of the Corporation (which may include
the records of any transfer agent for the Series One Preference Stock or Common
Stock, as the case may be) or (c) to such other address as the Corporation or
any such holder, as the case may be, shall have designated by notice similarly
given.
(2) The term "Common Stock" as used in this Section III.B. means the
Corporation's Common Stock of par value $.01, as the same exists at the date of
filing of this Certificate of Amendment of the Certificate of Incorporation of
the Corporation relating to Series One Preference Stock or any other class of
stock resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that, at any time as a
result of an adjustment made pursuant to Section III.B.(ix), the holder of any
shares of the Series One Preference Stock upon thereafter surrendering such
shares for conversion shall become entitled to receive any shares or other
securities of the Corporation other than shares of Common Stock, the Conversion
Price in respect of such other shares or securities so receivable upon
conversion of shares of Series One Preference Stock shall thereafter be
adjusted, and shall be subject to further adjustment from time to time, in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in Section III.B.(ix) hereof, and the
provisions of Sections (i) through (viii) and (x) and (xi) of this Article
Fourth III.B. with respect to the Common Stock shall apply on like or similar
terms to any such other shares or securities.
(3) The Corporation shall pay any and all stock transfer and documentary
stamp taxes that may be payable in respect of any issuance or delivery of shares
of Series One Preference Stock or shares of Common Stock or other securities
issued on account of Series One Preference Stock pursuant hereto or certificates
representing such shares or securities. The Corporation shall not, however, be
required to pay any such tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Series One Preference
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Stock or Common Stock or other securities in a name other than that in which the
shares of Series One Preference Stock with respect to which such shares or other
securities are issued or delivered were registered, or in respect of any payment
to any person with respect to any such shares or securities other than a payment
to the registered holder thereof, and shall not be required to make any such
issuance, delivery or payment unless and until the person otherwise entitled to
such issuance, delivery or payment has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that such
tax has been paid or is not payable.
(4) In the event that a holder of shares of Series One Preference Stock
shall not by written notice designate the name in which shares of Common Stock
to be issued upon conversion of such shares should be registered or to whom
payment upon redemption of shares of Series One Preference Stock should be made
or the address to which the certificate or certificates representing such
shares, or such payment, should be sent, the Corporation shall be entitled to
register such shares, and make such payment, in the name of the holder of such
Series One Preference Stock as shown on the records of the Corporation and to
send the certificate or certificates representing such shares, or such payment,
to the address of such holder shown on the records of the Corporation.
(5) Unless otherwise provided in the Certificate of Incorporation, as
amended, of the Corporation, all payments in the form of dividends,
distributions on voluntary or involuntary dissolution, liquidation or winding-up
or otherwise made upon the shares of Series One Preference Stock and any other
stock ranking on a parity with the Series One Preference Stock with respect to
such dividend or distribution shall be made pro rata, so that amounts paid per
share on the Series One Preference Stock and such other stock shall in all cases
bear to each other the same ratio that the required dividends, distributions or
payments, as the case may be, then payable per share on the shares of the Series
One Preference Stock and such other stock bear to each other.
(6) The Corporation may appoint, and from time to time discharge and
change, a transfer agent for the Series One Preference Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of Series
One Preference Stock.
FIFTH: (i) In addition to any affirmative vote required by law or
otherwise, the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of Voting Stock, voting together as a single class, held by
stockholders other than a Related Person shall be required for the approval,
authorization or effectuation directly or indirectly, of any Business
Combination with such Related Person (such affirmative vote being required
notwithstanding the fact that no vote may be required or that a lesser
percentage may be specified by law, this Certificate of Incorporation, any
resolution or resolutions adopted by the Board of Directors pursuant to this
Certificate of Incorporation, any agreement with any national securities
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exchange or otherwise); provided, however, that such voting requirement shall
not be applicable if:
(1) The Continuing Directors, by at least 66 2/3% vote of such continuing
Directors, have expressly approved such Business Combination either in
advance of or subsequent to such Related Person's having become a Related
Person; or
(2) All of the following conditions shall have been satisfied:
(a) The Fair Market Value as of the date of consummation of the
Business Combination of the consideration to be received per share by
holders of shares of each class or series of Capital Stock (regardless of
whether or not such Related Person is the Beneficial Owner of shares of
any such class or series of Capital Stock) in the Business Combination
is not less than the Highest Per Share Price;
(b) The form of consideration to be received by holders of shares of
each class or series of Capital Stock in the Business Combination shall be
United States currency or the form of consideration used by such Related
Person in acquiring the largest aggregate number of shares of the Capital
Stock which such Related Person has previously acquired;
(c) After such Related Person shall have first become a Related
Person and prior to the consummation of such Business Combination:
(x) Except as approved by at least 66 2/3% of the Continuing Directors,
there shall not have been any failure to declare and pay at the regular
dates therefor the full amount of all dividends (whether or not
cumulative) payable on the Preferred Stock, the Preference Stock or any
other class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation;
(y) There shall not have been (A) any reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) except as approved by at least 66
2/3% of the Continuing Directors or (B) any failure to increase such
annual rate of dividends, to the extent necessary to prevent any such
reduction, in the event of any reclassification (including any reverse
stock split), recapitalization, reorganization or any similar
transaction that has the effect of reducing the number of outstanding
shares of Common Stock, unless the failure so to increase such annual
rate shall have been approved by at least 66 2/3% of the Continuing
Directors; and
(z) Such Related Person shall not have become the Beneficial Owner of
additional shares of Voting Stock, except as part of the transaction
that results in such Related Person becoming a Related Person and
except in a transaction that,
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giving effect thereto, would not result in any increase in the
percentage of Voting Stock of which such Related Person is the
Beneficial Owner; and
(d) A proxy statement describing the proposed Business Combination
and complying with the requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder, or any acts,
rules or regulations that at least 66 2/3% of the Continuing Directors
determine are successors thereof, shall (whether or not such a proxy
statement is required to be mailed pursuant to such acts, rules or
regulations) have been mailed to all holders of Voting Stock at least 30
days prior to the date of the meeting called to consider such Business
Combination and such statement shall have contained, at the front thereof,
in a prominent place such recommendations and other information concerning
the Business Combination as at least 66 2/3% of the Continuing Directors
may determine so to include.
(ii) For purposes of this Article:
(1) The terms "Affiliate" and "Associate" shall have the same meaning as
in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, as in effect on the date of this Restated Certificate
(the term "registrant" in said Rule 12b-2 meaning in this case the Corporation),
and shall include a Person that, giving effect to a Business Combination, would
become such an Affiliate or Associate.
(2) The term "Beneficial Owner" shall mean any person which beneficially
owns any Capital Stock within the meaning ascribed in Rule 13d-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, as
in effect on the date of this Restated Certificate, or who has the right to
acquire any such beneficial ownership (whether or not such right is exercisable
immediately, with the passage of time or subject to any condition) pursuant to
any agreement, contract, arrangement or understanding or upon the exercise of
any conversion, exchange or other right, warrant or option, or otherwise. A
Person shall be deemed the Beneficial Owner of all Capital Stock of which any
Affiliate or Associate of such Person is the Beneficial Owner.
(3) The term "Business Combination" shall mean (a) any merger or
consolidation of the Corporation or a Subsidiary with or into a Related Person,
(b) any sale, lease, exchange, transfer or other disposition, including without
limitation by way of a mortgage or any other security device, of any Substantial
Amount of the assets of the Corporation, one or more Subsidiaries or the
Corporation and one or more Subsidiaries to a Related Person, (c) the adoption
of any plan or proposal for the liquidation or dissolution of the Corporation
proposed by or on behalf of any Related Person, (d) any sale, lease, exchange,
transfer or other disposition, including without limitation by way of a mortgage
or any other security device, of any Substantial Amount of the assets of a
Related Person to the Corporation, one or more Subsidiaries, or the Corporation
and one or more Subsidiaries, (e) the issuance of any securities of the
Corporation, one or more Subsidiaries or the Corporation and one or more
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Subsidiaries to a Related Person or to a Person that giving effect thereto,
would be a Related Person other than the issuance on a pro rata basis to all
holders of stock of the same class pursuant to a stock split or stock dividend,
(f) any reclassification of securities, recapitalization of the Corporation, or
any merger or consolidation of the Corporation with or into one or more
Subsidiaries or any other transaction that would have the effect, directly or
indirectly, of increasing the voting power or other equity interest of a Related
Person in the Corporation, (g) any loan, advance, guaranty, pledge or other
financial assistance by the Corporation, one or more Subsidiaries or the
Corporation and one or more Subsidiaries to or for the benefit, directly or
indirectly (except proportionately as a stockholder), of a Related Person, (h)
any agreement, contract or other arrangement providing for any Business
Combination and (i) any series of transactions that a majority of Continuing
Directors determines are related and that, taken together, would constitute a
Business Combination.
(4) For the purposes of Section (i)(2) of this Article FIFTH, the term
"consideration to be received" shall include, without limitation, Capital Stock
of the Corporation retained by its existing stockholders other than Related
Persons in the event of a Business Combination that is a merger and in which the
Corporation is the surviving corporation.
(5) The term "Continuing Director" shall mean a Director of the
Corporation who is not the Related Person, or an Affiliate or Associate of the
Related Person (or a representative or nominee of the Related Person or such
Affiliate or Associate), that is involved in the relevant Business Combination
and (a) who was a member of the Board of Directors of the Corporation
immediately prior to the time that such Related Person became a Related Person
or (b) whose initial election as a Director of the Corporation was recommended
by the affirmative vote of a least 66 2/3% of the Continuing Directors then in
office, provided that, in either such case, such Continuing Director has
continued in office after becoming a Continuing Director.
(6) The term "Fair Market Value" shall mean (a) in the case of United
States currency, the amount thereof, (b) in the case of stock, (x) the closing
sale price per share thereof on the last trading day preceding the date as of
which the determination thereof is to be made, or the highest closing sale price
per share thereof during the specified period, on the Composite Tape for New
York Stock Exchange--Listed Stocks or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or if such stock is not listed
on such exchange, on the United States securities exchange registered as a
national securities exchange under the Securities Exchange Act of 1934, as
amended, on which such stock is listed or principally traded, (y) if such stock
is not so listed, the closing bid quotation per share thereof on the last
trading day preceding the date as of which the determination thereof is to be
made, or the highest closing bid quotation per share thereof during the
specified period, on the National Association of Securities Dealers Inc.
Automated Quotation System, or any system then in use or (z) if no such
quotations are then available, the fair market value thereof, as of the date of
which the determination thereof is to be made, as determined by at least 66 2/3%
of the Continuing Directors and (c) in the case of securities, property or
assets
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other than such currency or stock, the fair market value thereof, as of the date
of which the determination thereof is made, as determined by at least 66 2/3% of
the Continuing Directors.
(7) The term "Highest Per Share Price" shall mean with respect to any
class or series of Capital Stock the highest of (a) the highest price per share
that can be determined to have been paid at any time by the Related Person
involved in the relevant Business Combination for any share or shares of such
class or series of Capital Stock, or if such Related Person has not acquired any
Capital Stock of such class or series, the highest equivalent, as determined by
at least 66 2/3% of the Continuing Directors for a share of such class or series
of such highest price for any other class or series of Capital Stock, (b) the
highest preferential amount, if any, per share payable to shares of such class
or series of Capital Stock in the event of a voluntary or involuntary
liquidation of the Corporation, or the highest redemption price, if any, to
which the holders of shares of such class or series of Capital Stock would be
entitled, whichever is the highest, and (c) the Fair Market Value per share of
such Capital Stock during the period of twenty (20) trading days immediately
preceding the time the relevant Business Combination is first publicly
announced, or during the period of twenty (20) trading days immediately
preceding the time at which the Related Person became a Related Person,
whichever is higher. In determining Highest Per Share Price, (x) all purchases
by the Related Person shall be taken into account regardless of whether the
share were purchased before or after the Related Person became a Related Person
and (y) the Highest Per Share Price shall include any brokerage commissions,
transfer taxes and soliciting dealers' fees or other value paid in connection
with such purchases.
A Related Person shall be deemed to have acquired a share of Capital Stock at
the time when such Related Person became the Beneficial Owner thereof. The price
deemed to have been paid by a Related Person for Capital Stock of which an
Affiliate or Associate is the Beneficial Owner shall be priced that is the
highest of (a) the price paid upon the acquisition thereof by the relevant
Affiliate or Associate (if any, and whether or not such Affiliate or Associate
was a Affiliate or Associate at the time of such acquisition), and (b) the Fair
Market Value per share of such Capital Stock during the 20 trading days
immediately preceding the time at which the Related Person became the Beneficial
Owner thereof.
In any determination of the price or prices paid or deemed to have been paid by
any Person, and in any determination of the Highest Per Share Price or Fair
Market Value, appropriate adjustment shall be made to reflect the effect of any
stock dividends, splits and distributions and any combination of Capital Stock.
(8) The Term "Related Person" shall mean (a) any Person (other than the
Corporation or any wholly owned Subsidiary) that, alone or together with any
Affiliate or Associate, is or becomes the Beneficial Owner of an aggregate of
10% or more of the outstanding Voting Stock, and (b) any Affiliate or Associate
of any such Person, provided, however, that the term "Related Person" shall not
include (x) a Person whose acquisition of such aggregate
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percentage of Voting Stock was approved in advance by at least 66 2/3% of the
Continuing Directors or (y) any pension, profit sharing, employee stock
ownership or other employee benefit plan of the Corporation or any Subsidiary,
all of the capital stock of or equity interest in which Subsidiary is owned by
the Corporation, one or more Subsidiaries or the Corporation and one or more
Subsidiaries, or any trustee or fiduciary when acting in such capacity with
respect to any such plan. The term "Person" shall mean any individual,
corporation, partnership or other entity, including any group comprised of any
Person and any other Person, or any Affiliate or Associate thereof, with whom
such Person, or any Affiliate or Associate thereof, has any agreement,
arrangement or understanding, directly or indirectly, for the purpose of
acquiring holding, voting or disposing of Voting Stock and each Person, and any
Affiliate or Associate thereof, that is a member of the group.
(9) The term "Subsidiary" shall mean any Person a majority of the capital
stock of or other equity interest in which is owned by the Corporation, one or
more Subsidiaries or the Corporation and one or more Subsidiaries.
(10) The term "Substantial Amount" shall mean an amount of stock,
securities or other property having a Fair Market Value equal to 10% or more of
the Fair Market Value of the total consolidated assets of the Corporation and
its Subsidiaries taken as a whole, as of the end of the Corporation's most
recent fiscal year ended prior to the time as of which the determination is
being made.
(11) The term "Voting Stock" shall mean all outstanding Common Stock and
all other outstanding Capital Stock of the Corporation, if any, entitled to vote
on each matter on which the holders of record of Common Stock shall be entitled
to vote, and each reference to a proportion of shares of Voting Stock shall
refer to such proportion of the votes entitled to be cast by the holders of such
Common Stock and other Capital Stock, if any, and the term "Capital Stock" shall
mean all outstanding capital stock of the Corporation issued pursuant to this
Certificate of Incorporation or any resolution or resolutions of the Board of
Directors of the Corporation adopted pursuant to this Certificate of
Incorporation.
(12) The Continuing Directors by at least 66 2/3% vote, shall have the
power to make any and all determinations provided for in this Article FIFTH and
to interpret the provisions and definitions in this article FIFTH, which
determinations and interpretations shall, to the fullest extent permitted by
law, be conclusive.
(iii) In addition to the requirements of law and any other
provisions of this Certificate of Incorporation or any resolution or resolutions
of the Board of Directors of the Corporation adopted pursuant to this
Certificate of Incorporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation, any such
resolution or resolutions or otherwise), the affirmative vote of the holders of
at least 66 2/3% of the outstanding shares of Voting Stock held by stockholders
other than any Related Person
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shall be required to amend, alter or repeal, or adopt any provision inconsistent
with the provisions of this Article FIFTH.
SIXTH: The number of directors of the Corporation shall not be less than
three nor more than eighteen as determined by action of the Board of Directors.
SEVENTH: (i) A Director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by Delaware Law.
(ii)(1) Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
than such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by Delaware Law. The right to indemnification conferred in this ARTICLE SEVENTH
shall also include the right to be paid by the Corporation the expenses incurred
in connection with any such proceeding in advance of its final disposition to
the fullest extent authorized by Delaware Law. The right to indemnification
conferred in this ARTICLE SEVENTH shall be a contract right.
(2) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation to such
extent and to such effect as the Board of Directors shall determine to be
appropriate and authorized by Delaware Law.
(iii) The Corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss
incurred by such person in any such capacity or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under Delaware Law.
(iv) The right and authority conferred in this ARTICLE SEVENTH shall not
be exclusive of any other right which any person may otherwise have or hereafter
acquire.
(v) Neither the amendment nor repeal of this ARTICLE SEVENTH, nor the
adoption of any provision of this Certificate of Incorporation or the bylaws of
the Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE
SEVENTH in respect of any acts or omissions occurring prior to such amendment,
repeal, adoption or modification.
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EIGHTH: Any action required or permitted to be taken at any annual or
special meeting of shareholders may be taken without a meeting on written
consent, setting forth the holders of all outstanding shares entitled to vote
thereon. Written consent thus given by the shareholders of all outstanding
shares entitled to vote shall have the same effect as a unanimous vote of
stockholders.
NINTH: Special meetings of the shareholders may be called by the Board of
Directors, the Chairman of the Board of Directors or the President of the
Corporation and may not be called by any other person. Notwithstanding the
foregoing, whenever holders of one or more classes or series of Preferred Stock
shall have the right, voting separately as a class or series, to elect
directors, such holders may call, to the extent provided in Article FOURTH (or
pursuant to the terms of the resolution or resolutions adopted by the Board of
Directors pursuant to ARTICLE FOURTH hereof), special meetings of holders of
such Preferred Stock or Preference Stock.
TENTH: The Corporation's bylaws or any of them, may be altered, amended or
repealed, or new bylaws may be made, by the shareholders entitled to vote
thereon at any annual or special meeting thereof or by the Board of Directors.
ELEVENTH: The Corporation reserves the right to amend this Certificate of
Incorporation in any manner permitted by Delaware Law and, with the sole
expectation of those rights and powers conferred under the above ARTICLE
SEVENTH, all rights and powers conferred herein on stockholders, directors and
officers, if any, are subject to this reserved power.
[Remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate
to be executed by its Chief Executive Officer and attested by its Secretary on
this 15th day of November, 1996.
CVS Corporation
By: /s/ Stanley P. Goldstein
----------------------------
Name: Stanley P. Goldstein
Title: Chairman of the Board and
Chief Executive Officer
Attest: /s/ Zenon Lankowsky
----------------------
Name: Zenon Lankowsky
Secretary: Secretary
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to that effect. If the notice is mailed, it shall be directed to a stockholder
at his address as it appears on the record of stockholders unless he shall have
filed with the Secretary of the corporation a written request that notices
intended for him be mailed to some other address, in which case it shall be
mailed to the address designated in such request.
Notice of a meeting need not be given to any stockholder who submits a
signed waiver of notice, in person or by proxy, whether before or after the
meeting. The attendance of a stockholder at a meeting, in person or by proxy,
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting, shall constitute a waiver of notice by him.
Section 4. QUORUM. At any meeting of the stockholders the holders of a
majority of the shares entitled to vote and being present in person or
represented by proxy shall constitute a quorum for all purposes, unless the
representation of a different number shall be required by law or by another
provision of these by-laws, and in that case the representation of the number so
required shall constitute a quorum.
If the holders of the amount of shares necessary to constitute a quorum
shall fail to attend in person or by proxy, the holders of a majority of the
shares present in person or represented by proxy at the meeting may adjourn from
time to time without further notice other than by an announcement made at the
meeting. At any such adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 5. ORGANIZATION. The Chairman of the Board of Directors or, in his
absence, the President or, in his absence, any Executive Vice President, Senior
Vice President or Vice President in the order of their seniority or in such
other order as may be designated by the Board of Directors, shall call meetings
of the stockholders to order and shall act as chairman of such meetings. The
Board of Directors or the Executive Committee may appoint any stockholder to act
as chairman of any meeting in the absence of any of such officers and in the
event of such absence and the failure of such board or committee to appoint a
chairman, the stockholders present at such meeting may nominate and appoint any
stockholder to act as chairman.
The Secretary of the corporation, or, in his absence, an Assistant
Secretary, shall act as secretary of all meetings of stockholders, but, in the
absence of said officers, the chairman of the meeting may appoint any person to
act as secretary of the meeting.
Section 6. VOTING. At each meeting of the stockholders every stockholder
of record having the right to vote shall be entitled to vote either in person or
by proxy.
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Section 7. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken at any annual or special meeting of stockholders may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all outstanding share entitled to vote thereon. Written consent thus
given by the holders of all outstanding shares entitled to vote shall have the
same effect as a unanimous vote of the stockholders.
Section 8. INSPECTORS OF ELECTION. The Board of Directors, in advance of
any stockholders' meeting may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a stockholders' meeting may, and on the request of any
stockholder entitled to vote thereat, shall appoint one or more inspectors. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat. Inspectors shall be sworn.
Section 9. CONDUCT OF ELECTION. At each meeting of the stockholders,
votes, proxies, consents and ballots shall be received, and all questions
touching the qualification of voters, the validity of proxies and the acceptance
or rejection of votes, shall be decided by the Inspectors of Election.
ARTICLE II
BOARD OF DIRECTORS
Section 1. NUMBER OF DIRECTORS. The number of directors of the Corporation
shall be not less than three nor more than eighteen, as determined by action of
the Board of Directors.
Section 2. TERM AND VACANCIES. Directors shall be elected at the annual
meeting of stockholders to hold office until the next annual meeting and until
their respective successors have been duly elected and have qualified.
Vacancies in the Board of Directors occurring between annual meetings,
from any cause whatsoever including vacancies created by an increase in the
number of directors, shall be filled by the vote of a majority of the remaining
directors, though less than a quorum.
Directors need not be stockholders.
Section 3. GENERAL POWERS OF DIRECTORS. The business of the corporation
shall be managed under the direction of its Board of Directors subject to the
restrictions imposed by law, by the corporation's certificate of incorporation
and amendments thereto, or by these by-laws.
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Section 4. MEETINGS OF DIRECTORS. The directors may hold their meetings
and may keep an office and maintain the books of the corporation, except as
otherwise provided by statute, in such place or places in the State of Delaware
or outside the State of Delaware as the Board may, from time to time, determine.
Any action required or permitted to be taken by the Board of Directors may
be taken without a meeting if all of the directors consent in writing to the
adoption of a resolution authorizing the action, and in such event the
resolution and the written consent of all directors thereto shall be filed with
the minutes of the proceedings of the Board of Directors.
Any one or more directors may participate in a meeting of the Board of
Directors by means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at the same
time, and participation by such means shall constitute presence in person at a
meeting.
Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at the principal office of the corporation in the County of
Providence, Town of Woonsocket, State of Rhode Island, or at such other place
within or without the State of Delaware as shall be designated in the notice of
the meeting as follows: One meeting shall be held immediately following the
annual meeting of stockholders and further meetings shall be held at such
intervals or on such dates as may from time to time be fixed by the directors,
all of which meetings shall be held upon not less than four days' notice served
upon each director by mailing such notice to him at his address as the same
appears upon the records of the corporation, except the meeting which shall be
held immediately following the annual meeting of stockholders which meeting
shall be held without notice.
Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
shall be held whenever called by the direction of the Chairman of the Board of
Directors, or of the President of the corporation, or of one-third of the
directors at the time in office. The Secretary shall give notice of each special
meeting by mailing such notice nor less than four days, or by telegraphing or
telecopying such notice nor less than two days, before the date set for a
special meeting, to each director.
Section 7. WAIVER. Notice of a meeting need nor be given to any director
who submits a signed waiver of notice whether before or after the meeting, or
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
Section 8. QUORUM. One-third of the total number of directors shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board
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there be less than a quorum present the majority of those present may adjourn
the meeting from time to time.
Section 9. ORDER OF BUSINESS. At meetings of the Board of Directors
business shall be transacted in such order as the Board may fix and determine.
At all meetings of the Board of Directors, the Chairman of the Board of
Directors, or in his absence, the President, or in the absence of both, the
Executive Vice-President or any Vice-President (provided such person be a member
of the Board) shall preside.
Section 10. ELECTION OF CHAIRMAN, OFFICERS AND COMMITTEES. At the first
regular meeting of the Board of Directors in each year, at which a quorum shall
be present, held next after the annual meeting of the stockholders, the Board of
Directors shall proceed to the election of a Chairman of the Board, of the
executive officers of the corporation and of the Executive Committee, if the
Board of Directors shall provide for such committee under the provisions of
Article III hereof.
The Board of Directors from time to time may fill any vacancies among the
executive officers, members of the Executive Committee and members of other
committees, and may appoint additional executive officers and additional members
of such Executive Committee or other committees.
Section 11. COMPENSATION. Directors who are not officers or employees of
the corporation or any of its subsidiaries may receive such remuneration as the
Board may fix, in addition to a fixed sum for attendance at each regular or
special meeting of the Board or a Committee of the Board; provided, however,
that nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity or receiving compensation
therefor. In addition, each director shall be entitled to reimbursement for
expenses incurred in attending any meeting of the Board or Committee thereof.
ARTICLE III
COMMITTEES
Section 1. EXECUTIVE COMMITTEE. The Board of Directors by resolution
adopted by a majority of the entire Board, may designate from the Directors an
Executive Committee consisting of three or more, to serve at the pleasure of the
Board. At all times when the Board of Directors is not in session, the Executive
Committee so designated shall have and exercise the powers of the Board of
Directors, except that such committee shall have no authority as to the matters
set out in Section 3 of this Article III.
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Meetings of the Executive Committee shall be called by any member of the
same, on three days' mailed notice, or one day's telegraphed or telecopied
notice to each of the other members, starting therein the purpose for which such
meeting is to be held. Notice of meeting may be waived, in writing, by any
member of the Executive Committee.
All action by the Executive Committee shall be recorded in its minutes and
reported from time to time to the Board of Directors.
The Executive Committee shall fix its own rules of procedure shall meet
where and as provided by such rules or by resolution of the Board of Directors.
Any action required or permitted to be taken by the Executive Committee
may be taken without a meeting if all of the members of the Executive Committee
consent in writing to the adoption of a resolution authorizing the action, and
in such event the resolution and the written consent of all members of the
Executive Committee thereto shall be filed with the minutes of the proceedings
of the Executive Committee.
Any one or more members of the Executive Committee may participate in a
meeting of the Executive Committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time, and participation by such means shall
constitute presence in person at a meeting.
Section 2. OTHER COMMITTEES. The Board of Directors may appoint such other
committees, of three or more, as the Board shall, from time to time, deem
advisable, which committees shall have and may exercise such powers as shall be
prescribed, from time to time, by resolution of the Board of Directors, except
that such committees shall have no authority as to the matters set out in
Section 3 hereof.
Actions and recommendations by each committee which shall be appointed
pursuant to this section shall be recorded and reported from time to time to the
Board of Directors.
Each such committee shall fix its own rules of procedure and shall meet
where and as provided by such rules or by resolution of the Board of Directors.
Any action required or permitted to be taken by any such committee may be
taken without a meeting if all of the members of such committee consent in
writing to the adoption of a resolution authorizing the action, and in such
event the resolution and the written consent of all members of such committee
thereto shall be filed with the minutes of the proceedings of such committee.
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Any one or more members of any such committee may participate in a meeting
of such committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time, and participation by such means shall constitute presence in
person at a meeting.
Section 3. LIMITATIONS. No committee shall have authority as to the
following matters.
(1) The submission to stockholders of any action that needs stockholders'
authorization.
(2) The filling of vacancies in the Board of Directors or in any
committee.
(3) The fixing of compensation of the directors for serving on the Board
or on any committee.
(4) The amendment or repeal of the by-laws, or the adoption of new
by-laws.
(5) The amendment or repeal of any resolution of the Board which by its
terms shall not be so amendable or repealable.
Section 4. ALTERNATES. The Board may designate one or more directors as
alternate members of any such committees, who may replace any absent member or
members at any meeting of such committees.
Section 5. COMPENSATION. Members of special or standing committees may
receive such salary for their services as the Board of Directors may determine;
provided, however, that nothing herein contained shall be construed to preclude
any member of any such committee from serving the corporation in any other
capacity or receiving compensation therefor.
ARTICLE IV
OFFICERS
Section 1. TITLES AND TERMS OF OFFICE. The executive officers of the
corporation shall be the Chairman of the Board of Directors and a Vice Chairman,
each of whom shall be a member of the Board of Directors, and may include a
President, such number of Executive Vice Presidents, Senior Vice Presidents
and/or Vice Presidents, a Controller, a Treasurer and/or a Secretary, as the
Board of Directors shall determine, all of whom shall be chosen by the Board of
Directors.
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The Board of Directors may also appoint one or more Assistant secretaries
and one or more Assistant Treasurers, and such other junior officers as it shall
deem necessary, who shall have such authority and shall perform such duties as
from time to time may be prescribed by the Board of Directors.
One person may hold more than one of the above offices except the offices
of President and Secretary.
The officers of the Corporation shall each hold office for one year and
until their successors are chosen and qualified, and shall be subject to removal
at any time by the affirmative vote of the majority of the entire Board of
Directors.
Section 2. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors shall be the chief executive officer of the corporation. He shall
have general management and control over the policy, business and affairs of the
corporation and shall have such other authority and perform such other duties as
usually appertain to a chief executive officer of a business corporation. He
shall preside at meetings of the Board of Directors and of the stockholders.
Section 3. VICE CHAIRMAN. The Vice Chairman shall have such authority and
perform such duties as the Board of Directors, the Executive Committee, or the
Chairman of the Board of Directors may from time to time determine. In the event
that at any time no President of the Corporation is in office, all powers of the
President shall vest in the Vice Chairman and the Vice Chairman may exercise all
powers of the President set forth in these by-laws.
Section 4. PRESIDENT. The President, if any, shall have such authority and
shall perform such duties as the Board of Directors, the Executive Committee, or
the Chairman of the Board of Directors may from time to time determine. He shall
exercise the powers of the Chairman of the Board of Directors during his absence
or inability to act.
Section 5. EXECUTIVE VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE
PRESIDENTS. The Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents, if any, shall be designated and shall have such powers and perform
such duties as may be assigned to them by the Board of Directors, the Executive
Committee, the Chairman of the Board of Directors or the President. They shall,
in order of their seniority or in such other order as may be designated by the
Board of Directors, the Executive Committee, the Chairman of the Board of
Directors or the President exercise the powers of the Chairman of the Board of
Directors during the absence or inability to act of the Chairman of the Board of
Directors and the President.
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Section 6. PRINCIPAL FINANCIAL OFFICER. An officer designated by the Board
of Directors shall be the principal financial officer of the Corporation. He
shall render to the Board of Directors, whenever the Board may require, an
account of the financial condition of the corporation, and shall do and perform
such other duties as from time to time may be assigned to him by the Board of
Directors, the Executive Committee, the Chairman of the Board of Directors or
the President.
Section 7. PRINCIPAL ACCOUNTING OFFICER. A Controller or other officer
designated by the Board of Directors shall be the principal accounting officer
and subject to the direction of the principal financial officer, he shall have
supervision over all the accounts and account books of the corporation. He shall
have such other powers and perform such other duties as from time to time may be
assigned to him by the principal financial officer, and shall exercise the
powers of the principal financial officer during his absence or inability to
act.
Section 8. TREASURER. The Treasurer shall have custody of the funds and
securities of the corporation which come into his hands. When necessary or
proper, he may endorse on behalf of the corporation for collection, checks,
notes, and other instruments and obligations and shall deposit the same to the
credit of the corporation in such bank or banks or depositaries as the Board of
Directors or the Executive Committee shall designate; whenever required by the
Board of Directors or the Executive Committee, he shall render a statement of
his cash account; he shall keep, or cause to be kept, books of account, in which
shall be entered and kept full and accurate accounts of all monies received and
paid out on account of the corporation; he shall perform all acts incident to
the position of Treasurer, subject to the control of the Board of Directors, the
Executive Committee, the Chairman of the Board of Directors, the President and
the principal financia1 officer; he shall give bond for the faithful discharge
of his duties, if, as, and when the Board of Directors or the Executive
Committee may require. He shall perform such other duties as from time to time
may be assigned to him by the Board of Directors, the Executive Committee, the
Chairman of the Board of Directors, the President or the principal financial
officer.
Section 9. ASSISTANT TREASURER. Each Assistant Treasurer shall have such
powers and perform such duties as may be delegated to him, and the Assistant
Treasurers shall, in the order of their seniority, or in such other order as may
be designated by the Board of Directors, the Executive Committee, the Chairman
of the Board of Directors, the President or the principal financial officer,
exercise the powers of the Treasurer during his absence or inability to act.
Section 10. SECRETARY. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of the
stockholders and of the Executive Committee, in books provided for that purpose;
he shall attend to the giving and serving of all notices of the corporation; and
be shall have charge of
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the certificate books, transfer books and records of stockholders and such other
books and records as the Board of Directors or Executive Committee may direct,
all of which shall at all reasonable times be open to the inspection of any
director upon application during the usual business hours.
He shall keep at the office of the corporation, or at the office of the
transfer agent or registrar of the corporation's capital stock, a record
containing the names, alphabetically arranged, of all persons who are
stockholders of the corporation, showing their places of residence, the number
of shares held by them, respectively, the time when they respectively became the
owners thereof, and the amount paid thereon, and such record shall be open for
inspection as prescribed by Section 220 of the General Corporate Law of the
State of Delaware. He shall in general perform all the duties incident to the
office of Secretary, subject to the control of the Board of Directors, the
Executive Committee, the Chairman of the Board of Directors and the President.
Section 11. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
such powers and perform such duties as may be delegated to him, and the
Assistant Secretaries shall, in the order of their seniority, or in such other
order as may be designated by the Board of Directors, the Executive Committee,
the Chairman of the Board of Directors or the President, exercise the powers of
the Secretary during his absence or inability to act.
Section 12. VOTING UPON STOCKS. Unless otherwise ordered by the Board of
Directors or by the Executive Committee, the Chairman of the Board of Directors
of the corporation, or one designated in a proxy executed by him, and in the
absence of either, the President, or a person designated in a proxy executed by
him, and in the absence of all such, the Executive Vice-Presidents or the
Vice-Presidents of the corporation in the order of their seniority, shall have
full power and authority on behalf of the corporation to attend, and to act, and
to vote at meetings of stockholders of any corporation in which this corporation
may hold stock, and each such officer of the corporation shall have power to
sign a proxy deputizing others to vote the same; and all such who shall be so
authorized to vote shall possess and may exercise any and all rights and powers
incident to the ownership of such stock and which, as the owner thereof, the
corporation might have possessed and exercised, if present.
The Board of Directors or the Executive Committee may, by resolution from
time to time, confer like powers on any other person or persons which shall
supersede the powers of those designated in the foregoing paragraph.
Section 13. EXECUTION OF CHECKS, ETC. All checks, notes, drafts or other
instruments for the payment of money shall be signed on behalf of this
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corporation by such person or persons and in such manner as the Board of
Directors or Executive Committee may prescribe by resolution from time to time.
ARTICLE V
STOCK; RECORD DATE
Section 1. CERTIFICATES FOR STOCK. The certificates for shares of the
stock of the corporation shall be in such form as shall be proper or approved by
the Board of Directors. Each certificate shall state (i) that the corporation is
formed under the laws of the State of Delaware, (ii) the name of the person or
persons to whom issued, (iii) the number and class of shares and the designation
of the series, if any, which such certificate represents and (iv) the par value,
if any, of each share represented by such certificate. Each certificate shall be
signed by the Chairman of the Board of Directors, the President, an Executive
Vice-President or a Vice-President, and also by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary and sealed with the
corporation's seal; provided, however, that if such certificates are signed by a
transfer agent or transfer clerk and by a registrar the signature of the
Chairman of the Board of Directors, the President, the Executive Vice President,
Vice-President, Treasurer, Assistant Treasurer, Secretary and Assistant
Secretary and the seal of the corporation upon such certificates may be
facsimiles, engraved or printed.
Section 2. TRANSFER OF SHARES. Shares of the stock of the corporation may
be transferred on the record of stockholders of the corporation by the holder
thereof in person or by his duly authorized attorney upon surrender of a
certificate therefor properly endorsed.
Section 3. AUTHORITY FOR ADDITIONAL RULES REGARDING TRANSFER. The Board of
Directors and the Executive Committee shall have power and authority to make all
such rules and regulations as respectively they may deem expedient concerning
the issue, transfer and registration of such certificates for shares of the
stock of the corporation as well as for the issuance of new certificates in lieu
of those which may be lost or destroyed, and may require of any stockholder
requesting replacement of lost or destroyed certificates, bond in such amount
and in such form as they may deem expedient to indemnify the corporation, and/or
the transfer agents, and/or the registrars of its stock against any claims
arising in connection therewith.
Section 4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors or
Executive Committee may appoint one or more transfer agents and one or more
registrars of transfer and may require all stock certificates to be
countersigned by such transfer agent and registered by such registrar of
transfers. One person or organization may serve as both transfer agent and
registrar.
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Section 5. RECORD DATE. For the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors shall fix in advance a date
as the record date for any such determination of stockholders. Such date shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
Section 6. LIST OF STOCKHOLDERS AS OF RECORD DATE. The Secretary of the
corporation or the transfer agent of its stock shall make and certify a list of
the stockholders as of the record date and number of shares of each class of
stock of record in the name of each stockholder and such list shall be present
at every meeting of stockholders. If the right to vote at any meeting is
challenged, the inspectors of elections, or person presiding the thereat, shall
require such list of stockholders to be produced as evidence of the right of the
persons challenged to vote at such meeting, and all persons who appear from such
list to be stockholders entitled to vote thereat, may vote at such meeting.
Section 7. DIVIDENDS. Dividends may be declared and paid out of the
surplus of the corporation as often and at such times and to such extent as the
Board of Directors may determine, consistent with the provisions of the
certificate of incorporation of the corporation.
ARTICLE VI
CORPORATE SEAL
The Board of Directors shall provide a suitable seal containing the name
of the corporation and of the state under the laws of which the corporation was
incorporated; and the Secretary shall have the custody thereof.
ARTICLE VII
AMENDMENTS
Section 1. These by-laws or any of them, may be altered, amended or
repealed, or new bylaws may be made by the stockholders entitled to vote thereon
at any annual or special meeting thereof or by the Board of Directors.
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State of Delaware
Office of the Secretary of State
--------------------------------
PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THAT "CVS CORPORATION" IS DULY INCORPORATED UNDER THE LAWS OF THE STATE
OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE EXISTENCE NOT
HAVING BEEN CANCELLED OR DISSOLVED SO FAR AS THE RECORDS OF THIS OFFICE SHOW AND
IS DULY AUTHORIZED TO TRANSACT BUSINESS.
THE FOLLOWING DOCUMENTS HAVE BEEN FILED:
CERTIFICATE OF INCORPORATION, FILED THE TWENTY-SECOND DAY OF AUGUST, A.D.
1996, AT 4 O'CLOCK P.M.
RESTATED CERTIFICATE, FILED THE FIFTEENTH DAY OF NOVEMBER, A.D. 1996, AT
12:30 O'CLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE
ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO
DATE.
AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO
DATE.
[Seal] /s/ Edward J. Freel
-------------------------------------
Edward J. Freel, Secretary of State
2656078 8310 AUTHENTICATION: 8473712
971164260 DATE: 05-20-97
<PAGE>
CVS CORPORATION
RESOLVED, that the Chairman, Vice Chairman, Secretary or any Vice
President or the Treasurer of the Corporation be, and they and each of them,
acting alone, hereby is, authorized and empowered, in the name and on behalf of
the Corporation, to enter into a commercial paper program providing for proceeds
to the Corporation in an aggregate principal amount of up to $1,500,000,000 on
such terms and condition as such officer shall approve, such approval to be
conclusively evidenced by execution of definitive documentation with respect to
such program; and further
RESOLVED, that the Chairman, Vice Chairman, Secretary or any Vice
President or the Treasurer of the Corporation be, and they and each of them,
acting alone, hereby is, authorized and empowered, in the name and on behalf of
the Corporation, to execute and deliver a credit agreement or other credit
facility (or an amendment or extension of any existing credit agreement or other
existing credit faci1ity) providing for financing to the Corporation in an
aggregate principal amount of up to $1,500,000,000 on such terms and conditions
as such officer shall approve, such approval to be conclusively evidenced by
such execution, to arrange for loans thereunder and to execute and deliver to
the lenders thereunder notes evidencing the borrowings thereunder; and further
<PAGE>
RESOLVED, that the Chairman, Vice Chairman, Secretary or any Vice
President or the Treasurer of the Corporation be, and they and each of them,
acting in each instance with the expressed concurrence of the Corporation's
Chief Financial Officer, hereby is, authorized and empowered, in the name and on
behalf of the Corporation, to enter into derivatives transactions exclusively
for risk management purposes, in the case of each transaction on such terms and
conditions as such officer and the Chief Financial Officer shall approve, such
approval to be conclusively evidenced by execution of definitive documentation
with respect thereto; and further
RESOLVED, that the Chairman, Vice Chairman, Secretary or any Vice
President or the Treasurer of the Corporation be, and each of them hereby is,
authorized to take any and all action, to execute any and all documents,
agreements and instruments and to take any and all steps deemed by them
necessary or desirable to carry out the purpose and intent of each of the
foregoing resolutions and the transactions contemplated thereby.
<PAGE>
APPROVAL OF MERGER
RESOLVED, that the Board of Directors of CVS Corporation ("CVS")
deems it desirable and in the best interest of CVS and its
stockholders to acquire Revco D.S., Inc., a Delaware corporation
("Revco"); and
FURTHER RESOLVED, that the form, terms and provisions of, and the
transactions contemplated in, the Agreement and Plan of Merger
(together with the exhibits thereto, the "Merger Agreement") between
Revco, CVS and North Acquisition Corp. (a newly formed wholly owned
subsidiary of CVS) ("Merger Sub"), substantially in the form
presented to this meeting and filed with the records of CVS,
providing for the merger or Merger Sub with and into Revco, with
Revco being the surviving entity (the "Merger"), pursuant to the
applicable laws of the State of Delaware and upon the terms and
conditions contained in the Merger Agreement, which provide, among
other things, for the issuance by CVS of that number of shares of
common stock of CVS as described in the Merger Agreement in exchange
for all the issued and outstanding shares of Revco common stock, be,
and the same hereby are, in all respects authorized and approved,
with such changes or additions as the person or persons hereinafter
authorized to execute the Merger Agreement on behalf of CVS may
approve, the execution and delivery thereof to be conclusive
evidence of such approval; and
FURTHER RESOLVED, that the Chairman of the Board and Chief Executive
Officer, the Vice Chairman and Chief Operating Officer, and any
other officer of CVS (the "Authorized Officers") be, and each of
them hereby is, authorized, empowered and directed, in the name and
on behalf of CVS to execute and deliver the Merger
<PAGE>
Agreement, substantially in the form presented to this meeting and
filed with the records of CVS, with such changes or additions to any
of the terms and provisions of said Merger Agreement as such
persons, or any one or more of them, executing the same shall
approve, the execution and delivery thereof to be conclusive
evidence of such approval; and
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, in the name and on behalf of CVS, to execute
and deliver all such certificates of merger, articles of merger or
plans of merger as may be required to effectuate the Merger; and
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, in the name and on behalf of CVS, to do and
perform all such further acts and things, to execute and deliver in
the name and on behalf of CVS, and where necessary or appropriate,
to file with the appropriate governmental authorities, all such
further certificates, instruments, applications, notices,
affidavits, powers of attorney, consents to service of process,
certified copies of minutes of stockholders' and directors'
meetings, bonds, agreements and other writings and documents as may
be required, and to make all such payments, and to take all such
other actions as in the judgment of any one or more of them shall be
deemed necessary or advisable in order to carry out and effectuate
the intent and purposes of the foregoing resolutions (or any of
them), and any or all of the transactions contemplated therein or
thereby, the authority therefor to be conclusively evidenced by the
taking of such action or the execution of such documents; and
ISSUANCE OF SHARES
FURTHER RESOLVED, that CVS is hereby authorized to issue such number
of shares of common stock of CVS, par value $.01 per share,
necessary to consummate the transactions contemplated by the Merger
Agreement, and, when issued in accordance with the Merger Agreement,
such shares of common stock of CVS shall be duly authorized, validly
issued, fully paid and non-assessable; and
<PAGE>
FURTHER RESOLVED, that the Chairman of the Board and Chief Executive
Officer is hereby authorized, in the name and on behalf of CVS, to
convene a Meeting of Stockholders of CVS, and shall convene such
meeting, to be held on such date and at such place, and subject to
such record date, as may be selected by the Chairman of the Board
and Chief Executive Officer whereat the share issuance required by
the Merger Agreement shall be submitted, with the recommendations of
this Board of Directors for approval thereof, to a vote of the
stockholders of CVS; and
PROXY STATEMENT AND REGISTRATION STATEMENT
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized in the name and on behalf of CVS, to prepare
or caused to be prepared and to execute and file with the Securities
and Exchange Commission (the "Commission") preliminary and final
proxy materials required by the rules and regulations of the
Commission for use in connection with the Meeting of Stockholders of
CVS referred to above; and
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, in the name and on behalf of CVS, to prepare,
execute and filed, or cause to be prepared and filed, with the
Commission a Registration statement, including a form of
prospectus/proxy statement on Form S-4, under the Securities Act of
1933, as amended (the "Securities Act") relating to, and providing
for, the registration of shares of common stock of CVS, par value
$.01 per share, to be issued in the Merger pursuant to the Merger
Agreement, together with all amendments thereto (including, without
limitation, all pre-effective amendments) and all documents required
as exhibits to the Registration Statement and any other
certificates, documents, instruments and papers which may be
required or desirable to be filed with the Commission, in such form
as the Authorized Officers executing the same may approve, such
approval to be conclusively evidenced by the execution thereof, and
to take any and all other actions that any such Authorized Officer
shall deem necessary or proper in order that the Registration
Statement, as it hereafter may be amended or supplemented, may
become effective pursuant to the provisions of the Securities Act
<PAGE>
and the rules and regulations of the Commission promulgated
thereunder; and
FURTHER RESOLVED, that Charles Conaway, the Executive Vice President
and Chief Financial Officer, be, and hereby is, designated as the
agent of CVS for service, who is hereby authorized to receive all
notices and communications from the Commission with respect to the
Registration Statement and any and all further amendments and
supplements thereto, and to exercise the powers and rights conferred
upon such agent by the Securities Act and the rules and regulations
of the Commission thereunder; and
FURTHER RESOLVED, that each officer and director who has executed or
may be required to execute the Registration Statement or any
amendments thereto, whether on behalf of CVS or as an officer or
director thereof or by attesting the seal of CVS or otherwise, be,
and each of them acting individually hereby is, authorized,
empowered and directed to execute a power of attorney in customary
form, appointing Thomas M. Ryan, Charles Conaway and Zenon P.
Lankowsky, each of them, with full power to act without the other,
his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities (until
revoked in writing to sign the Registration Statement and any and
all amendments (including post-effective amendments and other
amendments thereto) to the Registration statement and to file the
same, with all exhibits thereto and other documents in connection
therewith, with the Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary fully
to all intents and purposes as he or she might or could do in
person, thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by
virtue thereof, and the form, terms and provisions of such Power of
Attorney are hereby, in all respects approved; and
<PAGE>
"BLUE SKY" MATTERS
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, in the name and on behalf of CVS, to take any
and all action which they may deem necessary, advisable or
appropriate in order to effect the registration or qualification (or
exemption therefrom) of the shares of common stock of CVS to be
issued in the Merger for offer or sale under the Blue Sky or
securities laws of any of the states, districts, territories or
commonwealths of the United States of America or any other
jurisdiction and in connection therewith to determine in which of
such jurisdictions appropriate action shall be taken to qualify or
register for sale all or such part of such shares as said officers
may deem advisable; that the Authorized Officers be, and each of
them hereby is, authorized to perform in the name of and on behalf
of CVS any and all such action as such officer may deem necessary,
advisable or appropriate in order to comply with the applicable laws
of regulations of any such jurisdictions, and in connection
therewith to execute and file all requisite papers and documents,
including, but not limited to, applications, reports, surety bonds,
irrevocable consents and appointments of attorneys for service of
process; and the execution by any of such officers of any such paper
or document or the doing by any of them of any act in connection
with the foregoing matters shall conclusively establish such
officer's authority therefor from CVS and the approval and
ratification of CVS of the papers and documents so executed and the
action so taken and any resolution which is required or appropriate
in connection therewith shall be deemed to have been adopted hereby
and may so be certified by the Secretary of CVS; and
FURTHER RESOLVED, that the form of any resolution or resolutions
required by any agency or authority of the jurisdictions referred to
in the preceding resolution to be filed in connection with the
qualification or registration of such shares of common stock of CVS,
are hereby adopted, provided that in the opinion of any Authorized
Officer the adoption of such resolution or resolutions is in the
best interests of CVS, which resolution or resolutions will
thereupon be deemed to be adopted by this Board of Directors with
the same force and effect as if fully set forth herein, and the
Secretary of CVS is authorized to certify as
<PAGE>
to the adoption of any and all such resolutions, a copy of each such
resolution (if any) to be annexed to these resolutions in the minute
books of CVS; and
EXCHANGE LISTING
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, in the name and on behalf of CVS, to
prepare, execute and file, or cause to be prepared and filed, a
supplemental listing application with the New York Stock Exchange,
Inc. (the "NYSE"), providing for listing on the NYSE, upon official
notice issuance, of the shares of common stock of CVS to be issued
in the Merger, in such form as such officer or officers approve,
together with all amendments thereto and all documents required as
exhibits to such supplemental listing application and any other
filings which may be desirable to be made with the NYSE with respect
to the listing of such shares, and if required or requested, to
affix the corporate seal thereto, duly attested, and to appear, if
requested, before officials of the NYSE with authority to make
such changes to any such applications or any agreements relative
thereto as may be necessary to conform to the listing requirements
of the NYSE, and to take any and all actions that any such
Authorized Officer shall deem necessary or proper in connection with
the foregoing; and
FURTHER RESOLVED, that the form of any resolution or resolutions
required to be filed by the NYSE in connection with the listing of
the shares of common stock of CVS are hereby adopted, provided that
in the opinion of any Authorized Officer the adoption of such
resolution or resolutions is in the best interests of CVS, which
resolution or resolutions will thereupon be deemed to be adopted by
this Board of Directors with the same force and effect as if fully
set forth herein, and the Secretary of CVS is authorized to certify
as to the adoption of any and all such resolutions, a copy of each
such resolution (if any) to be annexed to these resolutions in the
minute books of CVS; and
HART-SC0TT-RODINO FILING
FURTHER RESOLVED, that the Authorized Officers and agents designated
by such officers be, and each of them
<PAGE>
hereby is, authorized and directed to prepare the filings required
by the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the "HSR
Act") with respect to the Merger, to execute and file such documents
with the Federal Trade Commission (the "FTC") and the Department of
Justice (the "DOJ"); to supply, in their discretion, any additional
information that may be requested by the FTC and the DOJ in
connection with the Merger and to cooperate with Revco with regard
to its preparation of any filings required by the HSR Act with
respect to the Merger; and
EXCHANGE AGENT
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized in the name and on behalf of CVS, to appoint
an Exchange Agent, in accordance with the Merger Agreement, for the
purpose of, among other things, exchanging certificates representing
shares of common stock of Revco for shares of common stock of CVS to
be issued in the Merger. The Exchange Agent shall act under the
direction and supervision of the Authorized Officers in all matters
arising out of or pertaining to the exchanging of such shares; and
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, in the name and on behalf of CVS, to execute
and deliver an agreement or such other documents in connection with
the foregoing resolution, on such terms as such Authorized Officers
deem necessary, advisable or appropriate, and that CVS is authorized
to pay any and all expenses and fees arising in connection
therewith; and
ADVISORS
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, in the name and on behalf of CVS, to retain
such legal, financial, accounting or other advisors, including,
without limitation, proxy solicitors, with respect to the Merger as
such officers shall deem necessary, advisable or appropriate and to
execute, deliver and enter into agreements or such other documents
with advisors on such terms as such Authorized Officers deem
necessary, advisable or appropriate, and that CVS is
<PAGE>
authorized to pay any and all expenses and fees arising in
connection therewith; and
GENERAL
FURTHER RESOLVED, that CVS is hereby authorized to pay any and all
fees, costs and expenses arising in connection with the registration
of the shares of common stock of CVS under the Securities Act and
under the securities or Blue Sky laws of various jurisdictions, and
otherwise in connection with these resolutions; and
FURTHER RESOLVED, that a11 actions heretofore taken by any officer
or director of CVS in connection with any matter referred to in any
of the foregoing resolutions are hereby approved, ratified and
confirmed in all respects as fully as if such actions had been
presented to this Board of Directors for its approval prior to such
actions being taken; and
FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, empowered and directed, in the name and on
behalf of CVS, to do and perform all such further acts and things
including, but not limited to, making all necessary filings with the
SEC, preparing and publishing newspaper advertisements or press
releases, and executing and delivering, and where necessary or
appropriate, filing with the appropriate governmental authorities,
a11 such certificates, contracts, bonds, agreements, documents,
instruments, receipts or other papers, and making all such payments
including payments of all fees and expenses, as in the judgment of
such officer shall be necessary, desirable or appropriate to
effectuate the Merger, the issuance of the shares of the common
stock of CVS pursuant to the Merger Agreement and the transactions
contemplated by each of the foregoing resolutions.
RESOLVED, that the authorization (pursuant to the resolution of this
Board of Directors, adopted on July 1O, 1996) of CVS Corporation to
repurchase, from time to time, in the open market up to two million
shares of its common stock, $.01 par value, is hereby revoked and
rescinded.
<PAGE>
[LOGO]
[LETTERHEAD OF STATE OF DELAWARE DEPARTMENT OF STATE]
GOODSTANDING TELEGRAM
DATE: MAY 29, 1997
TO: KAREN COUGHLIN
C/O: ACCESS INFORMATION SERVICES INC
FAX: 800-388-1599
CORPORATION(S) CVS CORPORATION [26560-76]
IS A DELAWARE CORPORATION IN GOODSTANDING AS OF
____ BEGINNING OF
BUSINESS
X TODAY'S DATE
----
____ CLOSE OF
BUSINESS
____ AND HAS NO TAXES ASSESSED TO DATE
____ AND HAS PAID TAXES TO DATE
X AND HAS FILED ANNUAL REPORTS AND PAID TAXES
- ----
SlGNATURE LINE: EDWARD J. FREEL, SECRETARY OF STATE OF DELAWARE
<PAGE>
CERTIFICATE OF TREASURER
I. Philip C. Galbo, Vice President and Treasurer of CVS Corporation, a
Delaware corporation (the "Borrower"), do hereby certify, in my capacity as Vice
President and Treasurer of the Borrower (and not in my individual capacity)
pursuant to Section 5.5 of the Five Year Credit Agreement by and among the
Borrower, the lenders party thereto, Fleet National Bank, as Documentation
Agent, JP Morgan Securities Inc., as Syndication Agent and The Bank of New York,
as Administrative Agent dated as of May 23, 1997 (the "Credit Agreement") that:
1. The CVS/Revco Merger has been consummated substantially in accordance
with the CVS/Revco Merger Documents, with no amendment or waiver of any term or
condition thereto.
2. The CVS/Revco Merger has become effective.
3. All representations and warranties contained in the Credit Agreement
are true and correct and no Default or Event of Default exists, in each case
immediately before and after giving effect to the consummation of the CVS/Revco
Merger.
4 Attached hereto is a true and complete copy of the CVS/Revco Merger
Documents.
5. Immediately before and after giving effect to the consummation of the
CVS/Revco Merger, the Borrower is Solvent.
<PAGE>
Terms used in this Certificate and not defined have the meanings assigned
to them in the Credit Agreement.
/s/ Philip C. Galbo
--------------------------
Philip C. Galbo
Vice President and Treasurer
May 30, 1997
- -------
2
<PAGE>
LODGED WITH THE ADMINISTRATIVE AGENT
<PAGE>
[LETTERHEAD OF DAVIS POLK & WARDWELL]
May 30, 1997
The Lenders, the Documentation Agent,
the Syndication Agent and
the Administrative Agent Referred to Below
c/o The Bank of New York,
as Administrative Agent
One Wall Street
New York, New York 10286
Ladies and Gentlemen:
We have acted as special New York counsel for CVS Corporation, a
Delaware corporation (the "Borrower") in connection with the Five Year Credit
Agreement by and among the Borrower, the lenders party thereto (the "Lenders"),
Fleet National Bank, as Documentation Agent, JP Morgan Securities Inc., as
Syndication Agent and The Bank of New York, as Administrative Agent dated as of
May 23, 1997 (the "Credit Agreement"). Capitalized terms not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion. In rendering our opinions set forth below, we have
assumed (i) that the Credit Agreement has been duly authorized, executed and
delivered by all parties thereto (other than the Borrower), (ii) that the
CVS/Revco Merger Documents have been duly authorized, executed and delivered by
all parties thereto, (iii) that the CVS/Revco Merger Documents constitute valid
and binding obligations of each party thereto and are enforceable in accordance
with their respective terms, (iv) the authenticity of all documents submitted
to us as originals, (v) the conformity to original documents of all documents
submitted to us as copies and (vi) the truth of all factual representations and
warranties made by the Borrower in the Credit Agreement.
<PAGE>
Based upon the foregoing, and subject to the qualifications set
forth below, we are of the opinion that:
1. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. The Borrower has
all requisite corporate power and authority to own its Property and to carry on
its business as now conducted.
2. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
3. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes do not require any action or approval on the part
of the shareholders of the Borrower or any action by or in respect of, or filing
with, any governmental body, agency or official under United States federal law,
New York state law or the Delaware General Corporation Law, and do not
contravene, or constitute a default under, any provision of (i) United States
federal law, New York State law or the Delaware General Corporation Law, (ii)
the Certificate of Incorporation or bylaws of the Borrower or (iii) any
agreement listed on Schedule I.
4. The Credit Agreement and the Notes delivered by the Borrower on
or prior to the date hereof have been duly executed and delivered by the
Borrower and each constitutes the valid and binding agreement of the Borrower,
in each case enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
from time to time in effect affecting the enforcement of creditors' rights
generally and to general principles of equity.
5. The consummation of the CVS/Revco Merger does not require any
action by or in respect of, or filing with, any governmental body, agency or
official under United States federal or New York State law or Delaware General
Corporation Law, other than any such actions which have been taken and any such
filings which have been made, in each case on or prior to the date hereof and
which in each case are in full force and effect on the date hereof.
6. The CVS/Revco Merger has been consummated in accordance with
the terms of the CVS/Revco Merger Documents.
7. The Borrower is not an "investment company" (as such term is
defined in the Unites States Investment Company Act of 1940, as amended).
The foregoing opinion is subject to the following qualifications:
2
<PAGE>
(a) We express no opinion as to the effect (if any) of any law of
any jurisdiction (except the State of New York) in which any Lender is
located which may limit the rate of interest that such Lender may charge
or collect.
(b) We express no opinion as to provisions in the Credit Agreement
which purport to create rights of set-off in favor of participants or
which provide for set-off to be made otherwise than in accordance with
applicable laws.
(c) We note that public policy considerations or court decisions may
limit the rights of any party to obtain indemnification under the Credit
Agreement.
We are members of the bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York, the federal laws of the
United States of America and the Delaware General Corporation Law.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent, except that
any person that becomes a Lender in accordance with the provisions of the Credit
Agreement may rely upon this opinion as if it were specifically addressed and
delivered to such person on the date hereof.
Very truly yours,
/s/ Davis Polk & Wardwell
3
<PAGE>
SCHEDULE I
1. The Other Credit Agreement
2. The Note Purchase Agreement dated as of June 7, 1989 among The Melville
Corporation and Subsidiaries Employee Stock Ownership Plan Trust, The Bank of
New York, as Trustee and Melville Corporation ("Melville"), as guarantor, as
amended by the Amendment thereto dated as of June 23, 1989.
3. Credit Agreement dated as of August 13, 1996 among Footstar, Inc.,
("Footstar") the Banks listed on the signature pages thereof, The Bank of New
York, as Issuing Bank, and Morgan Guaranty Trust Company of New York, as
Administrative Agent and Swingline Lender.
4. Distribution Agreement dated as of September 24, 1996 between Melville,
Footstar and Footaction Center, Inc.
5. Tax Disaffiliation Agreement between Melville and Footstar.
6. Transitional Services Agreement dated as of December 2, 1996 between the
Borrower and Linens `n Things, Inc. ("Linens").
7. Stockholders Agreement dated as of December 2, 1996 between the Borrower,
Nashua Hollis CVS, Inc., and Linens.
8. Tax Disaffiliation Agreement dated as of December 2, 1996 between the
Borrower and Linens.
9. Indenture dated as of January 1, 1993 between Revco D.S., Inc. and First
Fidelity Bank, National Association, New Jersey, as trustee, as amended by the
First Amendment to Indenture dated as of April 20, 1994.
10. Indenture dated as of June 1, 1992 between Hook SupeRx, Inc., and Star
Bank, National Association, as trustee.
4
<PAGE>
May 30, 1997
The Lenders, the Documentation Agent,
the Syndication Agent and
the Administrative Agent Referred to Below
c/o The Bank of New York,
as Administrative Agent
One Wall Street
New York, New York 10286
Ladies and Gentlemen:
I am general counsel of CVS Corporation, a Delaware corporation (the
"Borrower"), and have acted as such in connection with the Five Year Credit
Agreement by and among the Borrower, the lenders party thereto, Fleet National
Bank. as Documentation Agent, JP Morgan Securities Inc., as Syndication Agent
and The Bank of New York, as Administrative Agent dated as of May 23, 1997 (the
"Credit Agreement"). Capitalized terms not otherwise defined herein shall have
the meanings assigned to them in the Credit Agreement.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as I have deemed necessary or advisable for
purposes of this opinion. In rendering my opinions set forth below, I have
assumed (i) the authenticity of all documents submitted to me as originals and
(ii) the conformity to original documents of all documents submitted to me as
copies.
Based upon the foregoing, I am of the opinion that:
1. The Borrower is qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which it owns or leases real
Property or in which the nature of its business requires it to be so qualified
(except those jurisdictions where the failure to be so qualified or to be in
good standing could not reasonably be expected to have a Material Adverse
effect).
2. Except as set forth on Schedule 4.4 to the Credit Agreement, to
the best of my knowledge, there are no actions, suits, arbitration proceedings
or claims
<PAGE>
(whether purportedly on behalf of the Borrower, any Subsidiary or otherwise)
pending or threatened against the Borrower or any Subsidiary or any of their
respective Properties, or maintained by the Borrower or any Subsidiary, at law
or in equity, before any Governmental Authority which could reasonably be
expected to have a Material Adverse effect. To the best of my know1edge, there
are no proceedings pending or threatened against the Borrower or any Subsidiary
(a) which call into question the validity or enforceability of, or otherwise
seek to invalidate, any Loan Document or invalidate or prevent the consummation
of the CVS/Revco Merger, or (b) which might, individually or in the aggregate,
materially and adversely affect any of the transactions contemplated by any Loan
Document or materially and adversely affect the CVS/Revco Merger.
3. To the best of my knowledge, the Borrower is not in default under
any agreement to which it is a party or by which it or any of its Property is
bound the effect of which could reasonably be expected to have a Material
Adverse effect.
4. To the best of my knowledge, no provision of any judgment, decree
or order, in each case binding on the Borrower or any Subsidiary or affecting
the Property of the Borrower or any Subsidiary conf1icts with, or requires any
consent which has not already been obtained under, or would in any way prevent
the execution, delivery or performance by the Borrower of the terms of, any Loan
Document.
I am a member of the bar of the Commonwealth of Massachusetts and
the foregoing opinion is limited to the laws of the Commonwealth of
Massachusetts.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for any other purpose or
relied upon by any other person without our prior written consent, except that
any person that becomes a Lender in accordance with the provisions of the Credit
Agreement may rely upon this opinion as if it were specifically addressed and
delivered to such person on the date hereof.
Very truly yours,
/s/ [illegible]
2
<PAGE>
[LETTERHEAD OF EMMET, MARVIN & MARTIN, LLP]
May 30, 1997
TO THE LENDERS PARTY TO THE CREDIT
AGREEMENT (AS DEFINED BELOW)
Re: Five Year Credit Agreement, dated as of May 30,
1997, by and among CVS Corporation, the Lenders
party thereto, Fleet National Bank, as
Documentation Agent, JP Morgan Securities Inc.,
as Syndication Agent, and The Bank of New
York, as Administrative Agent (the Agreement")
-----------------------------------------------
We have acted as Special Counsel to the Administrative Agent in connection
with the Agreement. Capitalized terms used herein that are not defined herein
shall have the respective meanings ascribed thereto in the Agreement.
We have examined originals or copies certified to our satisfaction of the
documents required to be delivered pursuant to the provisions of Section 5 of
the Agreement. In conducting such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity to originals of all documents submitted to us as
copies.
Based upon the foregoing examination, and (1) assuming with your
permission the accuracy of the opinions of Zenon Lankowsky, General Counsel to
the Borrower, and Davis Polk & Wardwell, special New York counsel to the
Borrower, and (2) relying with your permission upon the representations and
warranties of the Borrower contained in the Agreement, we are of the opinion
that all legal preconditions to the effectiveness of the Agreement have been
satisfactorily met.
This opinion is rendered solely for your benefit in connection with the
transactions referred to herein and may not be relied upon by any other Person.
We express no opinion as to laws other than the laws of the State of New
York and the federal laws of the United States of America.
Very truly yours,
/s/ Emmet Marvin & Martin LLP
<PAGE>
CONFORMED COPY
- ------------------------------------------------------------------------------
THE MELVILLE CORPORATION AND SUBSIDIARIES EMPLOYEE
STOCK OWNERSHIP PLAN TRUST, As Issuer
MELVILLE CORPORATION, As Guarantor
-----------------------
NOTE PURCHASE AGREEMENT
-----------------------
8.60% ESOP Notes Due 2008
($357,500,000)
------------------------
Dated as of June 7, 1989
------------------------
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Authorization of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Purchase and Sale of Notes; Closing . . . . . . . . . . . . . . . . . . . . . .2
3. Conditions to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3A. Opinions of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3B. Representations and Warranties; No Default . . . . . . . . . . . . . . . .3
3C. Purchase Permitted by Applicable Laws. . . . . . . . . . . . . . . . . . .3
3D. ESOT Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3E. Compliance with Securities Laws. . . . . . . . . . . . . . . . . . . . . .4
3F. Approvals and Consents . . . . . . . . . . . . . . . . . . . . . . . . . .4
3G. Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3H. Sale of Notes to Other Purchasers. . . . . . . . . . . . . . . . . . . . .5
4. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4A. Required Installment Payments. . . . . . . . . . . . . . . . . . . . . . .5
4B. Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4C. Notice of Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . .6
4D. Acquisition or Retirement of Notes . . . . . . . . . . . . . . . . . . . .6
5. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5A. Financial Statements and Other Reports . . . . . . . . . . . . . . . . . .7
5B. Inspection of Property . . . . . . . . . . . . . . . . . . . . . . . . . .9
5C. Payment of Taxes and Claims. . . . . . . . . . . . . . . . . . . . . . . 10
5D. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5E. Maintenance of Properties. . . . . . . . . . . . . . . . . . . . . . . . 10
5F. Determination Letter . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5G. Plan Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5H. Application of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 12
6. Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6A. Restrictions on Senior Funded Debt . . . . . . . . . . . . . . . . . . . 12
6B. Restrictions upon Secured Debt . . . . . . . . . . . . . . . . . . . . . 13
6C. Restrictions upon Sale and Leaseback Transactions. . . . . . . . . . . . 15
6D. Restrictions on Funded Debt of Restricted Subsidiaries . . . . . . . . . 15
6E. Permitted Financing Transactions . . . . . . . . . . . . . . . . . . . . 16
6F. Consolidation, Merger, Conveyance, Transfer or Lease . . . . . . . . . . 16
i
<PAGE>
TABLE OF CONTENTS (cont'd)
Page
----
7. Income Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7A. Additional Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7B. Supplemental Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 19
7C. Payment Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7D. Interest Rate Adjustment . . . . . . . . . . . . . . . . . . . . . . . . 20
7E. Refunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7F. Contest of Disallowance of Section 133 Exclusion . . . . . . . . . . . . 22
7G. Request for Qualifying Opinion of Counsel. . . . . . . . . . . . . . . . 24
8. Company Guarantee and Purchase Obligation . . . . . . . . . . . . . . . . . . 25
8A. Guarantee by the Company . . . . . . . . . . . . . . . . . . . . . . . . 25
8B. Purchases of Notes by the Company. . . . . . . . . . . . . . . . . . . . 28
8C. Issuance of Notes by the Company . . . . . . . . . . . . . . . . . . . . 30
8D. Excess Allocation and Note Exchange. . . . . . . . . . . . . . . . . . . 31
9. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9A. Default; Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . 32
9B. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9C. Rescission of Acceleration . . . . . . . . . . . . . . . . . . . . . . . 37
9D. Limited Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . 38
10A. Organization; Corporate Authority. . . . . . . . . . . . . . . . . . . . 38
10B. Financial Statements; SEC Reports. . . . . . . . . . . . . . . . . . . . 39
10C. Actions Pending. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10D. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10E. Title to Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
10F. Conflicting Agreements and Other Matters . . . . . . . . . . . . . . . . 42
10G. Offering of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10H. Broker's or Finder's Commissions . . . . . . . . . . . . . . . . . . . . 42
10I. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10J. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . 43
10K. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . 43
10L. Governmental Consents, etc.. . . . . . . . . . . . . . . . . . . . . . . 43
10M. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10N. The Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10O. Representations as to the Trustee. . . . . . . . . . . . . . . . . . . . 46
10P. Pollution and Other Regulations. . . . . . . . . . . . . . . . . . . . . 47
ii
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TABLE OF CONTENTS (cont'd)
Page
----
11. Representations of Purchaser. . . . . . . . . . . . . . . . . . . . . . . . . 47
12. Definitions and Accounting Matters, etc. . . . . . . . . . . . . . . . . . . . 48
12A. Yield-Maintenance Terms. . . . . . . . . . . . . . . . . . . . . . . . . 48
12B. Other Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12C. Accounting Terms and Determinations. . . . . . . . . . . . . . . . . . . 63
13. Judicial Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
13A. Consent to Jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . 63
13B. Enforcement of Judgements. . . . . . . . . . . . . . . . . . . . . . . . 63
13C. Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
13D. No Limitation on Service or Suit . . . . . . . . . . . . . . . . . . . . 64
14. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
14A. Note Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
14B. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
14C. Consent to Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 66
14D. Form, Registration, Transfer and Exchange of Notes; Lost Notes . . . . . 67
14E. Persons Deemed Owners; Participations . . . . . . . . . . . . . . . . . 68
14F. Survival of Representations and Warranties; Entire Agreement . . . . . . 68
14G. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 68
14H. Disclosure to Other Persons. . . . . . . . . . . . . . . . . . . . . . . 68
141. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14J. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 69
14K. Satisfaction Requirement . . . . . . . . . . . . . . . . . . . . . . . . 69
14L. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
14M. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
14N. Reproduction of Documents. . . . . . . . . . . . . . . . . . . . . . . . 70
14O. Trustee Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
PURCHASER SCHEDULE
EXHIBIT A-1 - Form of Note
EXHIBIT A-2 - Amortization of Principal
EXHIBIT B-1 - [Intentionally left blank]
EXHIBIT B-2 - Form of Opinion of Company Counsel
EXHIBIT B-3 - Form of Opinion of Counsel to the ESOT
EXHIBIT B-4 - Form of Opinion of Willkie Farr & Gallagher
EXHIBIT C - Form of Company Note
iii
<PAGE>
THE MELVILLE CORPORATION AND SUBSIDIARIES EMPLOYEE
STOCK OWNERSHIP PLAN TRUST
The Bank Of New York, as Trustee
48 Wall Street
New York, New York 10528
MELVILLE CORPORATION
3000 Westchester Avenue
Harrison, New York 10528
June 7,1989
To the Purchaser accepting this Agreement
on the signature page hereof
Ladies and Gentlemen:
The undersigned, Melville Corporation, a New York corporation (the
"Company"), and the trust established by the Melville Corporation and
Subsidiaries Employee Stock Ownership Plan Trust Agreement (the "ESOT") of the
Melville Corporation and Subsidiaries Employee Stock Ownership Plan, an employee
stock ownership plan under section 407(d)(5) of ERISA and Section 4975(e) of the
Code (the "Plan"), hereby agree with you as follows:
1. AUTHORIZATION OF NOTES. The ESOT will authorize the issuance, sale and
delivery of $357,500,000 aggregate principal amount of its 8.60% ESOP Notes
(herein, together with any such notes that may be issued pursuant to any
provision of this Agreement and any such notes that may be issued hereunder in
substitution or exchange therefor, collectively called the "Notes" and
individually called a "Note") to be dated the date of issue thereof, to bear
interest on the unpaid principal balance thereof from the date thereof until the
principal balance thereof shall become due and payable at the rate of 8.60% per
annum (subject to the provisions of paragraph 7) and on overdue principal,
premium and interest at the rate specified therein, which Notes, when issued,
sold and delivered pursuant to this Agreement, will be substantially in the form
of Exhibit A-1. Interest on the Notes will be payable on December 31, 1989,
October 31, 1990, October 31, 1991 and October 31, 1992 and December 31, 1993
and each December 31 thereafter until the principal amount of the Notes shall
have been paid in full and will be computed based on a 360-day year comprised of
12 months of 30 days each.
Certain capitalized terms used in this Agreement are defined in paragraph
12; references to a paragraph are, unless otherwise specified, to one of the
<PAGE>
paragraphs of this Agreement and references to an "Exhibit" are, unless
otherwise specified, to one of the exhibits attached to this Agreement.
2. PURCHASE AND SALE OF NOTES; CLOSING. The ESOT hereby agrees to sell to
you and, subject to the terms and conditions herein set forth, you agree to
purchase from the ESOT, Notes in the principal amount set forth opposite your
name in the Purchaser Schedule attached hereto, in the form of one or more Notes
registered in your name or that of your nominee, as you shall request, and in
such denominations as you shall request, for an aggregate purchase price of 100%
of the principal amount thereof.
The issuance, sale and delivery of the Notes to be purchased by you shall
take place at 10:00 A.M., New York time, on June 23, 1989, at the offices of
Willkie Farr & Gallagher, 153 East 53rd Street, New York, New York, or on such
other date as the Company, the ESOT, you and the Other Purchasers may agree (the
"Closing"). At the Closing, the ESOT will deliver to you the Notes to be
purchased by you, against payment of the purchase price therefor (and
fulfillment of the requirements of paragraph 3H as to the Other Purchasers) by
wire transfer of immediately available funds to The Bank of New York, as Trustee
(ABA No. 021000018) for credit to the account of Melville Corporation and
Subsidiaries Employee Stock Ownership Trust. If at the Closing the ESOT shall
fail to tender to you the Notes to be purchased by you as provided above in this
paragraph 2, or any of the conditions specified in paragraph 3 shall not have
been satisfied or waived by you, you shall, at your election, be relieved of all
further obligations under this Agreement, without thereby waiving any other
rights you may have by reason of such failure or such non-fulfillment.
Concurrently with the execution and delivery of this Agreement, the ESOT
and the Company are entering into other Note Purchase Agreements (herein called
the "Other Note Agreements") identical to this Agreement (except as to the
identity of the purchaser and the principal amount of Notes to be purchased)
with the other purchasers (herein called the "Other Purchasers") named in the
Purchaser Schedule attached hereto. The sale of the Notes to you and to the
Other Purchasers are to be separate and several sales.
3. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes
to be purchased by you at the Closing is subject to the satisfaction or waiver,
prior to or simultaneously and concurrently with the Closing, of the following
conditions:
3A. OPINIONS OF COUNSEL. You shall have received from (i) Davis Polk &
Wardwell, counsel for the Company, a favorable opinion satisfactory in form and
substance to you in your sole discretion, (ii)(a) the General Attorney or
2
<PAGE>
Assistant General Attorney of the Company, (b) Winthrop, Stimson, Putnam &
Roberts, counsel to the ESOT and (c) Willkie Farr & Gallagher, your special
counsel in connection with the transactions contemplated by this Agreement,
favorable opinions substantially in the forms set forth in Exhibits B-2, B-3 and
B-4, respectively, each dated the date of the Closing and addressed to you. To
the extent that any opinion referred to above in this paragraph 3A is rendered
in reliance upon the opinion of any other counsel, you shall have received a
copy of the opinion of such other counsel, dated the date of the Closing and
addressed to you, or a letter from such other counsel, dated the date of the
Closing and addressed to you, authorizing you to rely on such other counsel's
opinion.
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations and
warranties of the ESOT and the Company contained in this Agreement shall be true
when made and at the time of the Closing in all material respects, and there
shall exist at the time of the Closing and after giving effect to the
transactions contemplated hereby, no Event of Default, Default, Purchase Event
or ESOT Event. The Company shall have delivered to you an Officer's Certificate,
dated the date of the Closing, to all such effects and further as to the
satisfaction of the conditions (other than any condition that any matters or
documents be in form and substance satisfactory to you) set forth in paragraph
3D and the ESOT shall have delivered to you a certificate, dated the date of the
Closing, to the same effect as such Officer's Certificate, but limited to
matters pertaining to the ESOT.
3C. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment for
the Notes to be purchased by you on the date of Closing on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the ESOT) shall not violate any applicable law or governmental regulation
(including, without limitation, section 5 of the Securities Act or Regulation G,
T, U or X of the Board of Governors of the Federal Reserve System) or result in
a violation of any order of any court or governmental body applicable to you (or
any of your employees, directors or affiliates) and shall not subject you to any
tax, penalty, liability or other onerous condition under or pursuant to any
applicable law or governmental regulation or order, and you shall have received
such certificates or other evidence as you may request to establish compliance
with this condition.
3D. ESOT TRANSACTION. Prior to the Closing you shall have received
complete and correct copies of the Plan Documents and all other documents and
instruments having the legal effect of governing the terms or administration of
the Plan or the ESOT, and all the terms and provisions thereof shall be
satisfactory to you in form and substance (including schedules and exhibits
thereto); all such agreements, documents and instruments shall be in full force
and effect and no
3
<PAGE>
term or condition thereof shall have been amended, modified or waived except
with your prior consent; the Trustee shall have made appropriate determinations
satisfactory to you establishing that neither the sale of the Notes to you nor
the purchase of the Employer Capital Stock as contemplated by the Stock Purchase
Agreement nor the consummation of the transactions contemplated by this
Agreement is or will constitute a "prohibited transaction" as such term is
defined in section 406 of ERISA or section 4975 of the Code; and the purchase of
Employer Capital Stock in the ESOT Transaction shall be duly and validly
consummated concurrently with the Closing hereunder. Except as affected by the
transactions contemplated hereby, all conditions precedent to the consummation
of the transactions contemplated by the Plan Documents shall have occurred, all
governmental authorizations, consents, approvals, exemptions or other actions
required in connection with such transactions shall have been duly received
(except for the determination letter from the IRS described in paragraph 5F) and
such transactions shall have been consummated substantially in accordance with
the terms of such documents. All material matters relating to the ESOT,
including, without limitation, the amount and the deductibility of contributions
by the Company to the ESOT, the use and sufficiency of such contributions to pay
the Notes and the excludibility of 50% of the interest paid by the ESOT on the
Notes from your Federal Gross Income, shall be satisfactory to you.
3E. COMPLIANCE WITH SECURITIES LAWS. The issuance, sale and delivery of the
Notes under this Agreement and of the Employer Capital Stock in the ESOT
Transaction shall have complied in all material respects with all applicable
requirements of Federal and state securities laws, and you shall have received
evidence of such compliance in form and substance reasonably satisfactory to
you.
3F. APPROVALS AND CONSENTS. The ESOT and the Company shall each have duly
received all authorizations, consents, approvals, licenses, franchises, permits
and certificates by or of all Federal, state and local governmental authorities
necessary for the issuance, sale and delivery of the Notes pursuant to this
Agreement and of the Employer Capital Stock in the ESOT Transaction ("Approvals
and Consents"), and all Approvals and Consents shall be in full force and effect
at the time of Closing and shall be effective to permit each such issuance, sale
and delivery, and you shall have received such certificates or other evidence as
you may reasonably request to establish compliance with this condition.
3G. PROCEEDINGS. All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby, and all documents
incident thereto shall be satisfactory in form and substance to you and your
special counsel, and you and your special counsel shall have received all such
4
<PAGE>
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
3H. SALE OF NOTES TO OTHER PURCHASERS. The ESOT shall, concurrently with
your purchase of Notes hereunder, sell to the Other Purchasers the Notes to be
purchased by them at the Closing as provided in the Other Note Agreements on
terms which are identical to the terms for your purchase hereunder and shall
receive payment in full therefor.
4. PAYMENTS. The Notes shall be subject to payment with respect to the
Required Installment Payments specified in paragraph 4A and shall be subject to
prepayment under the circumstances set forth in paragraph 4B.
4A. REQUIRED INSTALLMENT PAYMENTS. The principal amount of the Notes will
be due and payable in installment payments, as set forth on Exhibit A-2. Each
such installment payment is herein called a "Required Installment Payment". Upon
any partial prepayment of Notes pursuant to paragraph 4B, or any partial
retirement, purchase or other acquisition of Notes by the ESOT or the Company,
its Subsidiaries or Affiliates (whether pursuant to paragraph 4D or paragraph
8), the amount of each subsequent Required Installment Payment applicable to the
Notes shall be reduced by an amount equal to the product obtained by multiplying
(x) the aggregate principal amount of the Notes so prepaid, retired, purchased
or acquired by (y) a fraction the numerator of which is the amount of such
Required Installment Payment and the denominator of which is the unpaid
principal balance of the Notes immediately prior to such prepayment, retirement,
purchase or acquisition, as the case may be. Each Required Installment Payment
shall be allocated and applied to all Notes at the time outstanding in
proportion to the respective outstanding principal amounts thereof and shall be
set forth in the amortization schedule appended to each Note as provided in
Exhibit A-2.
4B. OPTIONAL PREPAYMENT. The Notes shall be subject to prepayment, at any
time in whole, or from time to time in part (in a minimum aggregate principal
amount of $1,000,000), at the option of the ESOT, at 100% of the principal
amount thereof to be prepaid, together with accrued interest thereon to the
prepayment date and the Yield-Maintenance Premium, if any, with respect to the
amount so prepaid. Upon any partial prepayment of the Notes pursuant to this
paragraph 4B, the principal amount so prepaid shall be allocated to all Notes at
the time outstanding in proportion to the respective outstanding principal
amounts thereof.
4C. NOTICE OF PREPAYMENTS. The ESOT shall give each holder of Notes
irrevocable written notice of any prepayment of the Notes pursuant to
5
<PAGE>
paragraph 4B not less than 30 days prior to the prepayment date, specifying such
prepayment date and the principal amounts of the Notes and of the Notes held by
such holder to be prepaid on such date and stating that such prepayment is being
made pursuant to paragraph 4B, whereupon the principal amount of the Notes to be
prepaid, together with interest accrued thereon to the prepayment date and the
Yield-Maintenance Premium, if any, with respect to each Note, shall become due
and payable on such prepayment date.
4D. ACQUISITION OR RETIREMENT OF NOTES. The Company will not, and will not
permit any of its Subsidiaries or Affiliates to, and the ESOT will not, retire
in whole or in part prior to their stated maturity, or purchase or otherwise
acquire, directly or indirectly, (other than by payment pursuant to paragraph
4A, prepayment pursuant to paragraph 4B or purchase or exchange pursuant to
paragraph 8B, 8C or 8D or upon acceleration pursuant to paragraph 9A), Notes
held by any holder unless the Company or such Subsidiary or Affiliate or the
ESOT shall have offered in writing to retire or purchase or otherwise acquire,
as the case may be, the same proportion of the aggregate principal amount of
Notes held by each other holder of Notes at the time outstanding upon the same
terms and conditions. To the extent that any holder of the Notes declines such
offer (or shall fail to accept such offer within the time period specified
therein, which shall be not less than 10 Business Days), the Company or such
Subsidiary or Affiliate or the ESOT may purchase or otherwise acquire Notes
(again pro rata and on the same terms as aforesaid) from other holders of Notes.
Any Notes retired, purchased or otherwise acquired by the Company or any of its
Subsidiaries or Affiliates or the ESOT shall not be deemed to be outstanding for
any purpose under this Agreement.
5. AFFIRMATIVE COVENANTS. The provisions of this paragraph 5 shall remain
in effect from the date hereof and thereafter so long as any Note shall remain
outstanding.
5A. FINANCIAL STATEMENTS AND OTHER REPORTS. The Company covenants that it
will deliver to each Significant Holder of a Note in quadruplicate:
(i) as soon as is practicable and in any event within 45 days
after the end of each quarterly period (other than the last quarterly
period) in each fiscal year commencing with the first such quarter
ending after the date of the Closing, consolidated statements of
income and of cash flow of the Company and its Subsidiaries for such
quarterly period, and a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarterly period, setting forth
in each case in comparative form, figures for the corresponding
quarter in the preceding fiscal year, all
6
<PAGE>
in reasonable detail and certified as complete and correct and
prepared in accordance with generally accepted accounting principles
by an authorized financial officer of the Company, subject to changes
resulting from year-end adjustments; provided, however, that delivery
of substantially the same financial statement information that is
required by a Quarterly Report on Form 10-Q of the Company for such
quarterly period as such form is in effect on the date hereof under
the Exchange Act shall be deemed to satisfy the requirements of this
clause (i);
(ii) as soon as practicable and in any event within 90 days after
the end of each fiscal year, consolidated statements of income and of
cash flow of the Company and its Subsidiaries for such year, and a
consolidated balance sheet of the Company and its Subsidiaries as at
the end of such year, setting forth in each case in comparative form,
corresponding consolidated figures from the preceding annual audited
financial statements, all in reasonable detail and reasonably
satisfactory in scope to the Required Holder(s), and accompanied by an
opinion addressed to the Company of independent public accountants of
recognized national standing selected by the Company whose opinion
shall be in scope and substance reasonably satisfactory to the
Required Holder(s) (it being agreed that the form of opinion included
in the Historical Financial Statements is satisfactory); provided,
however, that delivery of substantially the same financial statement
information that is required by an Annual Report on Form 10-K
(including all incorporated documents) of the Company for such fiscal
year as such form is in effect on the date hereof under the Exchange
Act shall be deemed to satisfy the requirements of this clause (ii);
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it
shall send to its public stockholders and copies of all registration
statements (without exhibits), other than on Form S-8 or any similar
successor form (except to the extent any such registration statement
on Form S-8 relates to any offer or sale of securities held by the
Plan), and all public reports which it files with the Commission;
(iv) promptly upon its becoming available and in any event within
30 days after such time as such reports are required to be filed with
the IRS, a copy of the annual report of the Plan on Form 5500;
(v) promptly upon their becoming available, copies of the Annual
Report on Form 11-K of the Plan as filed with the Commission;
7
<PAGE>
(vi) promptly following the Company's obtaining knowledge
thereof, a notice of the occurrence of any event that could, in the
reasonable judgment of the Company, be expected to give rise to a
change in the interest rate applicable to the Notes or the payment of
any amount by the ESOT pursuant to paragraph 7;
(vii) promptly upon receipt thereof by the Company or any of its
Subsidiaries, copies of all reports submitted to the Company or any of
its Subsidiaries by independent public accountants in connection with
each annual, interim or special audit of the books of the Company or
any of its Subsidiaries made by such accountants, including, without
limitation, any comment letter submitted by such accountants to
management in connection with their annual audit, but only if such
report or letter refers to material weakness in the Company's
accounting procedures or controls;
(viii) with reasonable promptness, such other financial data with
respect to the Company or any of its Subsidiaries as from time to time
may be reasonably requested by such Significant Holder.
Together with each delivery of financial statements required by clauses (i)
and (ii) above, the Company will deliver to each holder of Notes an Officer's
Certificate demonstrating (with computations in reasonable detail) compliance by
the Company and its Subsidiaries with the provisions of paragraphs 6A, 6B, 6C,
6D and 6E and stating that there exists no Event of Default, Default, ESOT Event
or Purchase Event, or, if any Event of Default, Default, ESOT Event or Purchase
Event exists, specifying the nature and period of existence thereof and what
action the Company has taken or proposes to take with respect thereto. Together
with each delivery of financial statements required by clause (ii) above, the
Company will deliver to each holder of Notes a certificate of such accountants
stating that, in conducting the audit necessary to certify such financial
statements, they have obtained no knowledge of any Default, Event of Default,
ESOT Event or Purchase Event, or, if they have obtained knowledge of any
Default, Event of Default, ESOT Event or Purchase Event, specifying the nature
and period of existence thereof. Such accountants, however, shall not be liable
to anyone by reason of their failure to obtain knowledge of any Default, Event
of Default, ESOT Event or Purchase Event which would not be disclosed in the
course of an audit conducted in accordance with generally accepted auditing
standards. The Company also covenants that forthwith upon the chief executive
officer, chief operating officer, principal financial officer, principal
accounting officer or treasurer of the Company obtaining actual knowledge of any
Default, Event of Default, ESOT Event or Purchase Event, it will deliver to each
holder of Notes an Officer's Certificate specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto.
8
<PAGE>
5B. INSPECTION OF PROPERTY. The Company covenants that it will permit any
authorized representative designated by you or any other Significant Holder, at
such Significant Holder's expense, to visit and inspect any of the properties of
the Company, including its financial and accounting records, and to make copies
and take extracts therefrom, and to discuss the affairs, finances and accounts
of the Company and its Subsidiaries with the Company's officers and, in or
outside of the presence of any officers or employees of the Company, with the
independent public accountants of the Company, all upon reasonable notice and at
such reasonable times during normal business hours and as often as may be
reasonably requested.
5C. PAYMENT OF TAXES AND CLAIMS. The Company covenants that it will pay or
discharge, or cause to be paid or discharged, before the same shall become
delinquent (i) all taxes, assessments and governmental charges (including claims
of the IRS and the PBGC and claims made at the instance of the PBGC) levied or
imposed upon it or its Subsidiaries or upon its or their income, profits or
property, except where non-payment would not (either individually or in the
aggregate) have a material adverse effect on the Company and its Subsidiaries
taken as a whole or the ability of the Company to perform and satisfy its
obligations under this Agreement, (ii) all lawful claims for labor, materials
and supplies, which, if unpaid, might by law become a lien upon its or its
Subsidiaries properties, except where non-payment would not (either individually
or in the aggregate) have a material adverse effect on the Company and its
Subsidiaries taken as a whole or the ability of the Company to perform and
satisfy its obligations under this Agreement and (iii) all required installments
under section 412(m) of the Code and all other required payments under section
412 of the Code with respect to any pension plan maintained by the Company or a
Code Affiliate; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment, charge
or claim whose amount, applicability or validity is being contested in good
faith by appropriate proceedings and for which adequate reserves have been
established in accordance with generally accepted accounting principles.
5D. CORPORATE EXISTENCE. Subject to paragraph 6F, the Company covenants
that it will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, rights (charter and statutory)
and franchises; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the holders of the Notes.
9
<PAGE>
5E. MAINTENANCE OF PROPERTIES. The Company covenants that it will cause all
properties of material value used or useful in the conduct of its business or
the business of any Subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
paragraph 5E shall prevent the Company from discontinuing the operation or
maintenance of any of such properties if such discontinuance is, in the judgment
of the Company, desirable in the conduct of its business or the business of any
Subsidiary and not disadvantageous in any material respect to the holders of the
Notes.
5F. DETERMINATION LETTER. The Company covenants that it will promptly (and
in no event later than August 31, 1989) apply for, and use its best efforts to
obtain and deliver to each holder of Notes as promptly as practicable, a
determination letter from the IRS to the effect that the Plan meets the
requirements for qualification under sections 401(a) and 4975(e)(7) of the Code
and the ESOT meets the requirements for tax exemption under section 501(a) of
the Code and that it will comply with any reasonable request from any Indemnitee
for assistance in establishing the status of the Plan as an "employee stock
ownership plan" under Section 4975(e)(7) of the Code or the status of any Note
as a "securities acquisition loan" under section 133 of the Code.
5G. PLAN EXISTENCE. (a) Unless and until the Board of Directors of the
Company shall have determined, by resolution, that it is no longer in the best
interests of the Company to maintain the ESOT, each of the Company and the ESOT
covenants that it will:
(i) do all things necessary to comply with the requirements for
an "exempt loan" to the ESOT as defined in Treasury Regulation
sections 54.4975-7 and 54.4975-11 and the requirements, if any, that
may be promulgated from time to time with respect to section 133 of
the Code;
(ii) do all things necessary to maintain and keep in full force
and effect the Plan as an "employee stock ownership plan", within the
meaning of section 4975(e)(7) of the Code and section 407(d)(6) of
ERISA;
(iii) cause the Plan and the ESOT to be operated and administered
at all times and be amended as necessary so as to remain qualified
under sections 401(a) and 4975(e)(7) of the Code and the ESOT to
remain tax-exempt under section 501(a) of the Code;
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<PAGE>
(iv) cause all other actions to be taken which are necessary for
the Plan and the ESOT to be in material compliance with all applicable
requirements of ERISA including Titles I and II thereof) and the Code
and the regulations thereunder as from time to time in effect and
applicable to the Plan and the ESOT; and
(v) take no action to amend or otherwise modify any Plan Document
in a manner, or take any other action, that would result in the
extension of credit represented by the Notes ceasing to qualify as a
"securities acquisition loan" within the meaning of section 133(b) of
the Code.
(b) From and after such time as the Board of Directors of the Company
shall have determined that it is no longer in the best interests of the
Company to maintain the ESOT, the Company shall forthwith terminate the
ESOT in accordance with the requirements of ERISA, the Code, the rules and
regulations promulgated thereunder, and all other requirements of law.
5H. APPLICATION OF PROCEEDS. The Company and the ESOT covenant that the
ESOT will apply the entire proceeds of the issuance and sale of the Notes to
acquire, at not more than adequate consideration (within the meaning of Section
3(18) of ERISA), Employer Capital Stock from the Company. The ESOT and the
Company will furnish to you, if required in connection with your purchase of the
Notes hereunder, a statement in conformity with applicable margin requirements
of the Federal Reserve under Regulation G or U.
6. NEGATIVE COVENANTS. The provisions of this paragraph 6 shall remain in
effect from the date hereof and thereafter so long as any Note shall remain
outstanding.
6A. RESTRICTIONS ON SENIOR FUNDED DEBT. The Company may not, nor may it
permit any Restricted Subsidiary to, create, issue, incur, assume or guarantee
any Senior Funded Debt (otherwise than in connection with renewals, extensions
or refundings of Senior Funded Debt at the time outstanding which do not
increase the aggregate outstanding principal amount thereof) or sell, transfer
or otherwise dispose of any Senior Funded Debt of a Restricted Subsidiary,
unless, after giving effect thereto and to the retirement of any Senior Funded
Debt to be retired substantially concurrently therewith, the aggregate amount of
Senior Funded Debt of the Company and its Restricted Subsidiaries outstanding,
determined on a consolidated basis, is less than or equal to 50% of Long-Term
Capitalization of the Company and its Restricted Subsidiaries.
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6B. RESTRICTIONS UPON SECURED DEBT. Except as expressly permitted by
paragraph 6E, the Company will not, nor will it permit any Restricted Subsidiary
to, create, issue, incur, assume or guarantee any Debt secured by a Mortgage
upon any Principal Property of the Company or any Restricted Subsidiary or on
any shares of stock or indebtedness of any Restricted Subsidiary (whether such
Principal Property, shares of stock or indebtedness is now owned or hereafter
acquired); without, in any such case effectively providing, concurrently with
the issuance, assumption or guarantee of any such Debt, that the Company's
obligations under paragraph 8 (the "Company Obligations") and any outstanding
Company Notes (together with, if the Company shall so determine, any other Debt
of or guaranteed by the Company or such Restricted Subsidiary then existing or
thereafter created ranking equally with the Company Obligations) shall be
secured equally and ratably with such Debt provided, however, that the foregoing
restrictions shall not apply to:
(i) Mortgages on property, shares of stock or indebtedness
existing at the time of the acquisition thereof by the Company or such
Restricted Subsidiary;
(ii) Mortgages on property of a corporation existing at the time
such corporation is merged into or consolidated with the Company or a
Restricted Subsidiary or at the time of a purchase, lease or other
acquisition of the property of a corporation or an operating division
thereof as an entirety or substantially as an entirety by the Company
or a Restricted Subsidiary;
(iii) Mortgages on property, shares of stock or indebtedness of
(or guaranteed by) any corporation existing at the time such
corporation becomes a Restricted Subsidiary;
(iv) Mortgages securing Debt of a Restricted Subsidiary owing to
the Company or to another Restricted Subsidiary;
(v) Mortgages on property (not to exceed the fair market value of
such property) to secure the payment of all or any part of the
purchase price of such property upon the acquisition of such property
by the Company or a Restricted Subsidiary or to secure any Debt
incurred or guaranteed by the Company or a Restricted Subsidiary, or
as to which a binding commitment to lend has been secured by the
Company or such Restricted Subsidiary, prior to, at the time of, or
within 12 months after the later of the acquisition, completion of
construction development, substantial repair, alteration or
improvement of the property, or commencement or placing in operation
of such property, which Debt is
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incurred or guaranteed for the purpose of financing all or any part of
the purchase price thereof or construction; development, substantial
repair, alteration or improvement thereof; provided, however, that in
the case of any such acquisition, construction or improvement the
Mortgage shall not apply to any property theretofore owned by the
Company or a Restricted Subsidiary, other than, in the case of any
such construction or improvement, any theretofore unimproved real
property on which the property so constructed, or the improvement, is
located;
(vi) liens for taxes, assessments or governmental charges or
levies not yet delinquent or which are being actively contested in
good faith by appropriate proceedings and for which adequate reserves
have been established in accordance with generally accepted accounting
principles.
(vii) liens of mechanics, materialmen and warehousemen and other
mortgages incidental to the conduct of the business of the Company and
its Subsidiaries or the ownership of its or their property and assets
which were not incurred in connection with the borrowing of money or
the obtaining of advances or credit and which do not, in the
aggregate, materially detract from the value of such property or
assets or materially impair the use thereof in the operation of such
business.
(viii) any extension, renewal or replacement (or successive
extensions, renewals or replacements) in whole or in part of any
Mortgage referred to in the foregoing clauses (i) to (vii), inclusive;
provided, however, that the principal amount of Debt secured thereby
shall not exceed the principal amount of Debt so secured at the time
of such extension, renewal or replacement, and that such extension,
renewal or replacement shall be limited to all or part of the property
encumbered by the Mortgage so extended, renewed or replaced (plus
improvements and construction on such property).
6C. RESTRICTIONS UPON SALE AND LEASEBACK TRANSACTIONS. Except as expressly
permitted by paragraph 6E, and except for any transactions which, if recast in
the form of a secured loan, would be permitted by the provisions of paragraph
6B, the Company will not, nor will it permit any Restricted Subsidiary to, enter
into any Sale and Lease-Back Transaction with respect to any Principal Property,
whether such Principal Property is now owned or hereafter acquired (except for
Sale and Lease-Back Transactions that involve leases for a term, including
renewals, of not more than three years, and except for Sale and Lease-Back
Transactions that involve leases between the Company and a Restritcted
Subsidiary or between Restricted Subsidiaries), if the purchaser's commitment in
respect thereof is obtained more
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than 12 months after the later of the acquisition or completion or the placing
in operation of such Principal Property as acquired, constructed or developed or
substantially repaired, altered or improved, unless the Company shall apply an
amount in cash equal to the greater of (i) the net proceeds, or (ii) the fair
value (as determined by the Company's Board of Directors) of such Principal
Property to the retirement (other than any mandatory retirement or by way of
payment at maturity), within 180 days of the effective date of any such Sale and
Leaseback Transaction, of Senior Funded Debt of the Company or any Restricted
Subsidiary (other than Debt owned by the Company or any Restricted Subsidiary);
provided, however, that the amount to be applied to such retirement of Senior
Funded Debt shall be reduced by an amount equal to the principal amount, of
other Senior Funded Debt voluntarily retired by the Company within 180 days
after the effective date of such Sale and Lease-Back Transaction, excluding in
each case retirements pursuant to mandatory sinking fund or prepayment
provisions and payments at maturity.
6D. RESTRICTIONS ON FUNDED DEBT OF RESTRICTED SUBSIDIARIES. Except as
expressly permitted by paragraph 6E, the Company will not permit any Restricted
Subsidiary to create, issue, incur, assume or guarantee any Senior Funded Debt
other than Funded Debt (i) secured by a Mortgage permitted under any of clauses
(i) through (viii) of Section 6B, (ii) of a corporation existing at the time
such corporation is merged into or consolidated with, or sells or otherwise
transfers substantially all its assets (or those of a division thereof) to, a
Restricted Subsidiary, (iii) of a corporation existing at the time such
corporation first becomes a Restricted Subsidiary or (iv) held by the Company or
another Restricted Subsidiary, and except for any extension, renewal or
replacement of any Senior Funded Debt referred io in clauses (i) through (iv) of
this paragraph 6D, provided that the aggregate principal amount thereof or the
aggregate preference on involuntary liquidation thereof, as the case may be,
shall not be increased. The Company may not, and may not permit any Restricted
Subsidiary to sell or transfer (except to the Company or a Restricted
Subsidiary) any Senior Funded Debt of a Restricted Subsidiary, other than Senior
Funded Debt secured by a Mortgage permitted under any of clauses (i) through
(viii) of paragraph 6B or in a transaction otherwise permitted by paragraph 6E.
6E. PERMITTED FINANCING TRANSACTIONS. Notwithstanding anything to the
contrary contained in Sections 6B, 6C and 6D, the Company and its Restricted
Subsidiaries may (i) create, issue, incur, assume or guarantee Debt secured by a
Mortgage in addition to the Mortgages permitted by clauses (i) through (viii) of
paragraph 6B, (ii) enter into Sale and Leaseback Transactions without applying
funds to the retirement of Senior Funded Debt as provide in paragraph 6C, and
(iii) permit Restricted Subsidiaries to create, issue, incur, assume, suffer to
exist or guarantee Senior Funded Debt in addition to Senior
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Funded Debt permitted by clauses (i) through (iv) of Section 6D if the aggregate
amount of all Debt secured by Mortgages, Attributable Debt in respect of Sale
and Leaseback Transactions and Senior Funded Debt, in each case permitted by
clauses (i), (ii) and (iii) of this paragraph 6E, does not exceed 10% of the
Long-Term Capitalization of the Company and its Restricted Subsidiaries, as
computed as of the time of becoming liable with respect to such obligation.
6F. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. (i) The Company
shall not consolidate with or merge into any other corporation or sell, convey,
transfer or lease all or substantially all of its properties and assets to any
Person, unless:
(a) the corporation formed by such consolidation or into which the Company
is merged or the Person which acquires by conveyance or transfer, or which
leases, the properties and assets of the Company substantially as an
entirety shall be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
and shall expressly assume, by an agreement supplemental hereto, executed
and delivered to the holders of the Notes, the due and punctual performance
of the obligations and covenants of the Company hereunder; and
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary as
a result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, (1) no Event of Default, and no
event which, after notice or lapse of time or both, would become an Event
of Default, shall have occurred and be continuing and (2) paragraph 6A
shall permit the incurrence by the Company of no less than $1.00 of
additional Senior Funded Debt; and
(c) in the case of a sale, conveyance, transfer or lease of assets, the
Company shall have received full and fair consideration as determined by
the Board of Directors of the Company by resolution for the properties or
assets so sold, conveyed, transferred or leased.
(ii) Upon any consolidation by the Company with or merger by the Company
into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety in accordance
with paragraph 6D(i), the successor corporation formed by such consolidation or
into which the Company is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Agreement (including, without limitation,
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those provided for in paragraph 8) with the same effect as if such successor
corporation had been named as the Company herein, and thereafter, except in the
case of a lease, the predecessor corporation shall be relieved of all
obligations and covenants under this Agreement.
7. INCOME TAXATION.
7A. ADDITIONAL PAYMENTS. In the event that at any time (whether before or
after payment of the Notes) a Gross-Up Event shall occur with respect to any
Indemnitee, the ESOT will pay to such Indemnitee as additional interest in
immediately available funds at the time or times specified in paragraph 7C:
(i) an amount equal to the excess of:
(a) the amount of interest which would have been payable on the unpaid
principal amount of such Indemnitee's Note during the Additional Payment
Period if such Note had borne interest at a rate per annum equal to the
Gross-Up Rate (appropriately reduced if the amount of interest on such
Indemnitee's Note included in its Federal Gross Income shall exceed the
Inclusion Rate but shall be less than 100%) over
(b) the amount of interest actually paid or payable under the terms of
such Indemnitee's Note during the Additional Payment Period (excluding any
additional interest on overdue amounts paid or payable as provided in the
Notes); and
(ii) the sum of
(a) the amount of any interest and of any penalties, additions to tax and
additional amounts payable under the Code (such penalties, additions to tax
and additional amounts being referred to as "Additions to Tax") which are
deductible for Federal income tax purposes and are payable (or have been
paid) to the United States by the Indemnitee as a consequence of the
failure to include more than the Inclusion Rate of the interest referred to
in paragraph 7AW(b) in the Federal Gross Income of such Indemnitee, and
(b) an amount which, after giving effect to all taxes attributable to the
inclusion of such amount in the Federal Gross Income of such Indemnitee
(such taxes to be calculated at the maximum statutory rate, applicable to
such Indemnitee during the relevant taxable period, after taking into
account deductions attributable to the imposition of Federal taxes), shall
be equal to the amount of any interest or Additions to Tax which are not
deductible for Federal income tax purposes and which are payable (or have
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been previously paid) to the United States by the Indemnitee as a
consequence of the failure to include more than the Inclusion Rate of the
interest referred to in paragraph 7A(i)(b) in the Federal Gross Income of
such Indemnitee;
provided, however, that as to any Gross-Up Event, no payment shall be required
pursuant to paragraph 7A(ii) on account of any interest and Additions to Tax
with respect to periods after all amounts due under paragraph 7A have been paid
with respect to such Gross-Up Event.
7B. SUPPLEMENTAL PAYMENT S. (a) In the event that at any time (whether or
not any Notes remain outstanding) a Change of Law shall occur with respect to
any Indemnitee, the ESOT will pay to such Indemnitee as additional interest in
immediately available funds at the time or times specified in paragraph 7C an
amount with respect to the applicable Supplemental Payment Period which, after
giving effect to all taxes attributable to the inclusion of such amount in
Federal Gross Income of such Indemnitee shall be equal to any new or additional
Federal tax related to the acquisition, ownership or disposition of such
Indemnitee's Note which arises (and for this purpose tax arises, among other
events, as a result of a reduction in any Tax Allowance) as a result of such
Change of Law (all such Federal taxes to be calculated at the maximum statutory
rate applicable to such Indemnitee) and adjusted to reflect any increased
deductions or credits available to the Indemnitee related to the acquisition,
ownership or disposition of such Indemnitee's Note which arise as a result of
such Change of Law.
(b) Rules Governing Alternative Minimum Tax. If the alternative minimum tax
is amended to classify any portion of the Statutory Exclusion as a "preference"
or "adjustment (excluding preferences or adjustments relating to sections 56(f)
and 56(g) of the Code, and successor provisions), the following rules shall
apply. The amount payable to the Indemnitee under this Section 7B shall equal
the product of (A) the lesser of (i) the AMT Increase and (ii) the AMT Liability
multiplied by (B) the Proration Fraction. For this purpose, the following
definitions shall apply:
"AMT Increase" = Preference Increase x 20% Rate x Total Section 133
Exclusions.
7C. PAYMENT DATES. (i) If the ESOT becomes obligated to make payments to
any Indemnitee pursuant to paragraph 7A, the Indemnitee shall from time to time
notify the ESOT and the Company of the amount that is payable in respect of such
portion of the Additional Payment Period (a) as had elapsed prior to the
occurrence of a Gross-Up Event, which amount shall be due and payable (1)
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in the case such notice is given prior to payment in full of the Notes, on the
first date thereafter on which any interest on the Notes is due and payable (or,
if later, 10 days after the date of such notice), or (2) in the case such notice
is given after payment in full of the Notes, within 10 days after the date of
such notice, and (b) as had elapsed on and after the occurrence of a Gross-Up
Event, which amount will be payable on each date thereafter on which any
interest on the Notes is due and payable (each notice under this clause (b)
shall be given at least 10 days prior to such interest payment date) provided,
however, that if the Gross-Up Event occurs solely as a result of the occurrence
of the event described in clause (b)(i) of the definition of Gross-Up Event, the
ESOT and the Company may elect not to make any payments due hereunder during the
period of any contest under paragraph 7F, unless the Indemnitee makes a payment
(including reducing any available refund, offset or credit otherwise available)
of the increased Federal tax arising from the Gross-Up Event, in which event the
amount of such increased Federal tax (including any interest and Additions to
Tax) shall be paid by the ESOT to the Indemnitee promptly upon its receipt of
notice of such payment from the Indemnitee.
(ii) If the ESOT becomes obligated to make payments to any Indemnitee
pursuant to paragraph 7B, such Indemnitee shall notify the ESOT and the Company
(a) of the amount that is payable in respect of such portion of the Supplemental
Payment Period as had elapsed prior to the date such notice is given, which
amount shall be due and payable within 10 days after the date of such notice,
and (b) at least annually, of the amount that will be payable on such date or
dates thereafter as set forth in such notice (each of which shall be at least 10
days after the date of such notice), which amount shall become due and payable
on the dates specified.
(iii) The computation of any amount payable under paragraph 7A, 7B, 7D or
7E shall be made in good faith by the Indemnitee and shall be explained in
writing to the ESOT and the Company, but neither the ESOT nor the Company shall
have any right to examine the Indemnitee's Federal income tax returns or any
other returns, documents or records of the Indemnitee. At the Company's or the
ESOT's request and at the Company's expense, the Indemnitee will cause the
Indemnitee's independent auditors to review such computation and certify to the
Company or the ESOT, as the case may be, that such computation is accurate in
all material respects.
(iv) If the ESOT shall fail to pay any amount payable under paragraphs 7A
or 7B on the due date pursuant to this paragraph 7C, the ESOT shall also pay, to
the extent lawful, interest on such unpaid amount at the rate payable on overdue
payments of principal on the Notes, as set forth therein.
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7D. INTEREST RATE ADJUSTMENT. In the event that at any time after the date
hereof there is for any reason a change in the Federal Tax Rate or the Inclusion
Rate, then, in that event, the interest rate on the Notes held by each Qualified
Holder shall be automatically adjusted (but not higher than the Gross-Up Rate
nor lower than Fully Tax-Exempt Rate), effective as of the effective date of
change for each such change, to the rate per annum determined by multiplying the
original interest rate applicable to the Notes by the Adjustment Fraction. Each
Qualified Holder shall determine the adjusted interest rate on its Notes in
accordance with the foregoing, subject to the procedures described in paragraph
7C(iii). The ESOT unconditionally promises to pay interest on such Notes from
the date of each such change at the rate as so adjusted from time to time. If
for any reason (e.g., a retroactive effective date) the effective date of change
for any such change is prior to one or more payment dates for which payments
were due and payable on such Notes, adjustments to payments are required under
this paragraph 7D, (i) the ESOT shall promptly upon demand by such Qualified
Holder pay the amount by which interest computed at such rate or rates exceeds
the amount of interest actually theretofore paid by the ESOT on the Notes or
(ii) such Qualified Holder shall promptly upon demand for refund by the ESOT pay
the amount by which the interest computed at such rate or rates is exceeded by
the amount of interest theretofore paid by the ESOT on the Notes.
7E. REFUNDS. (i) If the ESOT or the Company shall make any payment to any
Indemnitee pursuant to paragraph 7A or 7B and such Indemnitee shall thereafter
receive a refund, offset or credit of tax of Federal Tax for any taxable year to
which such payment related in respect of a claim that part of the interest on
the Notes to which such payment related was excludable from its Federal Gross
Income (or if it is otherwise subsequently determined that payments pursuant to
paragraph 7A or 7B exceeded the amounts necessary to compensate the Indemnitee
for a Gross-up Event or Change of Law, in which event, for purposes of this
paragraph 7E(i), the Indemnitee shall be treated as receiving a refund in the
amount of such excess) such Indemnitee shall pay to the ESOT or the Company, as
the case may be, the sum of:
(a) an amount equal to the amount previously paid to such Indemnitee
pursuant to paragraph 7AM or 7B with respect to the interest on such Notes
for such taxable year to which such claim for refund, offset, or credit
related (the "Disputed Interest") multiplied by a fraction the numerator of
which is the amount of the refund or credit received of tax paid with
respect to the Disputed Interest and the denominator of which is the amount
of tax paid by such Indemnitee with respect to such Disputed Interest; and
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(b) the amount of any refunded, offset or credited interest or Additions to
Tax that had been paid with respect to such Disputed Interest and with
respect to which such Indemnitee had been paid pursuant to paragraph 7A(ii)
or 7B.
For purposes of this paragraph 7E(i), in the caise of a Gross-Up Event occurring
solely as a result of the failure to provide a Qualifying Opinion of Counsel,
the Indemnitee shall be treated as receiving a refund if and when it files a
federal income tax return excluding interest on the Indemnitee's Note, in an
amount equal to the portion of the amount paid pursuant to paragraph 7A that was
determined with reference to the interest excluded on the return.
(ii) If the ESOT or the Company shall make any payment to an Indemnitee
pursuant to paragraph 7B and if, in the Federal income tax return of such
Indemnitee or after any adjustment of such return, the amount of the Tax
Allowance or other amount by reference to which the amount of the supplemental
payments is determined differs from the amount used to compute the amount of
such payment, the ESOT or the Company, as the case may be, shall pay to such
Indemnitee promptly on written demand any additional amount computed pursuant to
paragraph 7B, and the Indemnitee shall promptly refund to the ESOT or the
Company, as the case may be, any excess amount paid pursuant to paragraph 7B,
attributable to such difference.
7F. CONTEST OF DISALLOWANCE OF SECTION 133 EXCLUSION. (i) If an Indemnitee
anticipates receiving or actually receives an IRS Notice asserting a claim
which, if successful, could result in a Gross-Up Event (an "Exclusion Claim"),
the Indemnitee agrees to notify the ESOT and the Company in writing, as promptly
as possible, of such Exclusion Claim and provide the ESOT and the Company with
any relevant information relating to such Exclusion Claim that may be available
to the Indemnitee.
(ii) The Indemnitee further agrees to contest any Exclusion Claim with
diligence and in good faith, including appealing any adverse administrative or
judicial determination and seeking a refund with respect to any Exclusion Claim
if (in each instance) so requested by the ESOT or the Company; provided,
however, that:
(a) within 30 days after notice by the Indemnitee to the ESOT and the
Company of such Exclusion Claim, the ESOT or the Company shall request that
such Exclusion Claim be contested;
(b) prior to the Indemnitee's taking any such requested action (including
appealing any adverse decision), the Company (at the expense of
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the Company and upon the written request of the Indemnitee) shall
provide the Indemnitee with an opinion, reasonably satisfactory to the
Indemnitee, of nationally recognized counsel, independent of the ESOT and
the Company and reasonably satisfactory to the Indemnitee to the effect
that there exists a reasonable basis for contesting such Exclusion Claim;
(c) the Company shall from time to time pay to the Indemnitee within 30
days after receipt by the ESOT and the Company of an itemized written
demand therefor and explanation thereof an amount sufficient, on an
after-tax basis, to reimburse the Indemnitee for all out-of-pocket
expenses that the Indemnitee has incurred in connection with contesting
or defending such Exclusion Claim or any appeal thereof, including,
without limitation, expert witness, attorneys' and accountants' fees and
disbursements; and
(d) the Indemnitee may, at any time, settle, compromise or otherwise
terminate any contest with the consent of the ESOT and the Company, which
consent shall not be unreasonably withheld.
(iii) Sole control over the conduct of any contest under subparagraph (ii)
of this paragraph 7F shall be vested in the Indemnitee, but the Indemnitee shall
consult with the ESOT, the Company and their counsel regarding all aspects of
the contest, and shall consider and act on (or refrain from acting on) in good
faith any recommendations of the ESOT, the Company, and their counsel as to
conduct of the contest. The right of the Indemnitee to control the conduct of
any contest shall not be construed to relieve the Indemnitee of its obligation
to contest any Exclusion Claim in accordance with paragraph 7F(ii).
(iv) Notwithstanding anything to the contrary contained in subparagraph
(i), (ii) or (iii) of this paragraph 7F, the Indemnitee may in its sole
discretion settle or compromise any Exclusion Claim, provided the Indemnitee
gives the ESOT and the Company notice of its intention to settle or compromise
the Exclusion Claim. If, after receiving the notice referred to in the preceding
sentence and within 45 days of an agreement between the Company and the
Indemnitee on the identity of counsel, the Company provides the Indemnitee with
an opinion, reasonably satisfactory to the Indemnitee, of nationally recognized
counsel, independent of the ESOT and the Company and reasonably satisfactory to
the Indemnitee, that it is more likely than not that the Indemnitee would
prevail in litigation with respect to such Exclusion Claim, then, to the extent
payment was made by the ESOT or the Company under paragraph 7A, the Indemnitee
shall be deemed to have received a refund in the amount of such payment, and
shall immediately return such amount to the ESOT or the Company; to the extent
payment was not made, the Gross-Up Event giving rise to the disallowance shall
be deemed not to have occurred. Alternatively, if the Company provides the
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Indemnitee with an opinion, reasonably satisfactory to the Indemnitee, of
nationally recognized counsel, independent of the ESOT and the Company and
reasonably satisfactory to the Indemnitee, that there is substantial authority
(as defined in Section 6661 of the Code) for the position that the Indemnitee
would prevail in litigation with respect to such Exclusion Claim, then if the
amount paid by the ESOT or the Company exceeds 50% of the amount payable
pursuant to paragraph 7A, the Indemnitee shall pay such excess to the ESOT or
the Company, as appropriate; and if 50% of the amount payable pursuant to
paragraph 7A exceeds the amount paid by the ESOT or the Company, the ESOT or the
Company, as the case may be, shall pay the amount of such excess to the
Indemnitee in complete accord and satisfaction of its obligations as to such
issue under paragraph 7A.
For purposes of this subparagraph, an opinion will be "reasonably
satisfactory" if such opinion considers authorities deemed relevant by such
counsel (which will include authorities, which to the knowledge of such counsel
are being relied upon by the IRS, such knowledge to include information obtained
from discussions which the Indemnitee reasonably requests of such counsel) and
does not assume any factual or legal conclusions that are being contested by the
IRS (other than legal conclusions as to which such counsel properly opines)
provided, however, that such opinion of counsel may rely on factual conclusions
(even if contested by the IRS) contained in an opinion letter or appraisal or by
a nationally recognized expert independent of the Company and the ESOT and
reasonably satisfactory to the Indemnitee.
7G. REQUEST FOR QUALIFYING OPINION OF COUNSEL. If any Indemnitee
determines, in good faith after consultation with independent nationally
recognized counsel, that there is a substantial likelihood for any reason
whatsoever that any Qualified Holder will be required to include more than that
percentage of the interest on the Notes which is equal to the Inclusion Rate in
its Federal Gross Income, such Indemnitee shall be entitled to request a
Qualifying Opinion of Counsel at the Company's expense with respect to interest
on the Notes for a period commencing with the date of issuance of the Notes and
continuing through the date of such request or for any lesser period specified
in such Indemnitee's request. If such a request is made, such Indemnitee shall
supply the counsel rendering such opinion with such information as may be
reasonably requested by such counsel in order for it to form a basis for
rendering the opinion requested.
8. COMPANY GUARANTEE AND PURCHASE OBLIGATION.
8A. GUARANTEE BY THE COMPANY. (i) The Company, in consideration of the
execution and delivery of this Agreement, hereby
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unconditionally and irrevocably guarantees to you (together with your successors
and assigns, hereinafter referred to as the "Purchaser") and to the holders from
time to time of the Notes, the due and punctual payment of the principal of,
premium, if any (including, without limitation, the Yield-Maintenance Premium,
if any) and interest on the Notes when and as the same shall become due and
payable, whether at the maturity thereof, by acceleration, by notice of
prepayment or otherwise, according to the terms thereof and of this Agreement,
and the due and punctual payment of any other amounts owing to the Purchaser and
to such holders under or in respect of the Notes and all other payment
obligations of the ESOT hereunder (including, without limitation, amounts
payable by the ESOT pursuant to paragraph 7), whether absolute or contingent,
liquidated or unliquidated. In the absence of the due observance and performance
by the ESOT of any of its other obligations, undertakings and conditions
contained in this Agreement the Company shall use its best efforts, to the
extent practicable, to provide reasonably equivalent performance intended to
achieve comparable results. If the ESOT shall not punctually pay any such
principal, premium (including, without limitation, the Yield-Maintenance
Premium, if any), interest or other amounts (regardless of whether the holders
of the Notes have recourse against the ESOT), the Company shall make such
payment forthwith thereafter. If the Purchaser or any of the holders of the
Notes shall have the right to declare any or all of the Notes due and payable
(or any such right shall be limited by operation of the last sentence of
paragraph 9A or otherwise), and acceleration of the payment of such Notes is
stayed, enjoined or otherwise prevented for any reason, including, without
limitation, because of the provisions of Treasury Regulation section 54-4975-7
and 54.4975-11, the Company, upon demand therefor, shall pay to the Purchaser
and each holder of Notes, the sums which would have been due to the Purchaser
and such holders under this Agreement if such acceleration had occurred, all as
permitted by applicable law.
(ii) The Company agrees that its obligations hereunder are absolute and
unconditional, irrespective of the validity, regularity or enforceability of, or
any change in or amendment to, any Note or this Agreement, the institution or
absence of any action to enforce the same, the waiver or consent by the
Purchaser or the holder of any Note with respect to the provisions thereof, the
obtaining of any judgment against the ESOT or any action to enforce the same,
the inability to recover from the ESOT because of any statute of limitations,
laches or otherwise or any other circumstance which might otherwise constitute a
legal or equitable discharge of or a defense to a guarantor, and that the
provisions of this paragraph 8 constitute a guarantee of payment and not of
collectibility.
(iii) The Company hereby unconditionally: (a) waives notice of acceptance
hereof, of any action taken or omitted in reliance hereon and of any defaults in
respect of the Notes or in the payment of any other amounts due in respect
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thereof, diligence, protest, presentment, filing of claims with a court in the
event of the bankruptcy of the ESOT subject to such filings as may be necessary
to protect rights of subrogation, but only at the written instance and expense
of the Company), any right to require a proceeding first against the ESOT, or
that the ESOT be joined in any proceeding against the Company, any marshalling
of assets of the Company or the ESOT, any notice of default with respect to any
of the Notes or this Agreement or any other act or omission or thing or delay to
do any other act or thing which might in any manner or to any extent vary the
risk of the Company or which might otherwise operate as a discharge of the
Company; (b) agrees that this guarantee shall remain in full force and effect
without regard to, and shall not be affected or impaired by, any invalidity,
irregularity or unenforceability in whole or in part of any of the Notes or this
Agreement or any of the limitations of liability or payment conditions
thereunder which may now or hereafter be caused or imposed in any manner
whatsoever; (c) agrees that this guarantee shall not be subject to any
counterclaim (other than those which are compulsory in nature), set-off,
deduction or defense based upon any claim the Company may have against the ESOT
or any holder of the Notes hereunder or otherwise; and (d) agrees that this
guarantee shall be discharged only by complete performance of the undertakings
in this paragraph 8. Nothing herein is intended to impair any rights of the
Company to enforce any rights it may have against any Person by way of a
separate proceeding or action.
(iv) The Company authorizes the Purchaser and the holders of the Notes,
without notice or demand to the Company and without affecting its liability
hereunder, from time to time (a) to exercise or refrain from exercising any
rights against the ESOT or others; and (b) to apply any sums, by whomsoever paid
or however realized, to the payment of the principal of, premium, if any, and
interest on the Notes and any other obligation hereunder. The Company waives any
right to require the Purchaser and the holders of the Notes to proceed against
the ESOT or any other Person or to pursue any other remedy available to the
Purchaser or to such holders.
(v) In the event the ESOT fails to observe or perform any of its
obligations or undertakings under this Agreement (an "ESOT Default"), the
Company will be subrogated and succeed to the rights of the Purchaser and the
holders of the Notes which may be asserted against the ESOT by the Purchaser or
such holders as a result of any such ESOT Default upon payment or performance of
such obligations or undertakings; provided, however, that the Company will not
exercise any rights which it may have acquired by way of subrogation under this
Agreement, by any payment made hereunder or otherwise, or accept any payment on
account of such subrogation rights, unless and until all of the obligations,
undertakings or conditions then and thereafter to be performed or observed by
the ESOT pursuant to the Notes and this Agreement at the time of the Company's
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exercise of any such right shall have been performed, observed or paid in full
by the ESOT or the Company. In the event that the Company receives any payment
on account of such subrogation rights, it shall promptly apply such payment to
the extent of its obligations hereunder. In the event that the Company pays or
causes to be paid all amounts due under any of the Notes, the Purchaser or
holder will assign and transfer such Notes to the Company or its designee. In no
event shall such subrogation grant to the Company any right or power with
respect to the ESOT which it is forbidden to exercise pursuant to ERISA or the
Code or the regulations thereunder including but not limited to Treasury
Regulation sections 54.4975-7 and 54.4975-11.
(vi) This guarantee shall continue to be effective or be reinstated, as the
case may be, if at any time payment, or a part thereof, of the principal of,
Yield Maintenance Premium, if any, or interest on any of the Notes or of any
other obligations guaranteed hereby is rescinded or must otherwise be restored
or returned by the Purchaser or any subsequent holder of Notes upon the
insolvency, bankruptcy or reorganization of the ESOT, or otherwise, all as
though such payment has not been made.
(vii) The Company may at any time elect to pay or otherwise perform any
obligation of the ESOT under this Agreement or in respect of the Notes, which
shall operate as a discharge and release of the ESOT from such obligation to the
Purchaser or any subsequent holders of the Notes (but not to the Company as
subrogee or as a successor Noteholder), provided that no such election shall
release the ESOT from any of its other obligations hereunder and under the
Notes.
8B. PURCHASES OF NOTES BY THE COMPANY. (i) At any time after the occurrence
of a Purchase Event or, subject to the provisions of paragraph 8C, an ESOT
Event, and prior to the expiration of the later of (x) 90 days after receipt of
an Event Notice (as defined in subparagraph (iii) below) relating thereto and
(y) 15 days after receipt of an Other Holder Notice (as defined in subparagraph
(iii) below), but in no event later than one year after receipt of such Event
Notice, any holder of a Note may deliver a notice to the Company (a) stating
that it is electing to exercise its right to require the purchase by the Company
pursuant to this paragraph 8B of the Notes then held by it (a "Purchase Notice")
and (b) specifying the date on which, subject to the provisions of paragraph
8B(iv), if applicable, such purchase shall occur (which date shall not be less
than 25 nor more than 35 days after the date on which such holder shall have
delivered such Purchase Notice to the Company), and in any such event the
Company, on such specified date, shall purchase or cause to be purchased the
Note or Notes then held by such holder, without recourse, representation or
warranty (other than as to the holder's full right, title and interest free of
any adverse claim in such Note or Notes), and, subject to the provisions of
paragraph
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8B(iv), such holder shall sell such Note or Notes to or at the direction of the
Company at a price, payable in immediately available funds by wire transfer to
the accounts specified pursuant to paragraph 14A or to such other account as may
be specified in such notice, equal to the then outstanding principal amount
thereof, together with interest accrued on such principal amount to the date of
purchase, plus a premium equal to the Yield-Maintenance Premium, if any, with
respect to each Note purchased.
(ii) If either or both of Moody's or Standard & Poor's is not providing
public ratings of Unsupported Company Debt, the Company may (subject to the
approval of the Required Holder(s)) substitute another rating agency or other
rating agencies of national reputation for Moody's and/or Standard & Poor's for
the purpose of determining, by reference to the public ratings of two such
rating agencies (which shall include Moody's or Standard & Poor's if one of them
is providing public ratings of Unsupported Company Debt), whether the Company
shall be obligated pursuant to subparagraph (i) of this paragraph 8B to purchase
such holder's Note or Notes. If no rating agency of national reputation is
providing public ratings of the Unsupported Company Debt, any holder of a Note
may request that the Company obtain from each of Moody's and Standard & Poor's a
private credit rating for the Unsupported Company Debt for the purpose of
determining, by reference to the ratings of two such rating agencies, whether
the Company shall be obligated pursuant to subparagraph (i) of this paragraph 8B
to purchase such holder's Note or Notes. Upon receipt of any such request, the
Company shall promptly, and in any event within 10 days after receiving such
request, notify each other holder of a Note of such request and use its best
efforts to obtain as promptly as practicable from each of Moody's and Standard
Poor's (or, if either of them declines to provide a private credit rating, the
other of them and one other rating agency of national reputation, and if both of
them so decline, two other rating agencies of national reputation (subject to
the approval of the Required Holders)) a private credit rating for such purpose.
If the Company does not have any Unsupported Company Debt, the determination of
whether the Company shall be obligated pursuant to subparagraph (i) of this
paragraph 8B to purchase any holder's Note or Notes shall be made as aforesaid,
but by reference to a credit rating of the Notes instead of Unsupported Company
Debt. If the Company is required pursuant to this subparagraph (ii) of this
paragraph 8B to seek a private credit rating and fails to obtain such private
credit rating within 90 days of any holder's request therefor, such rating shall
be deemed to be less than Baa3 or BBB- (or any comparable rating then in
existence). In the event another rating agency of national reputation is
substituted for Moody's or Standard & Poor's, such determination shall be made
by reference to the rating of such substituted agency that is most nearly
comparable to Baa3 of Moody's and BBB- of Standard & Poor's (or, in either case,
the comparable ratings then in existence).
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Suspension of a rating by a rating agency shall be deemed to have the effect of
such agency providing no rating.
(iii) The Company covenants that it will deliver to each holder of a Note
promptly, and in any event within 10 days following the occurrence thereof, (a)
a notice of any change in the credit rating (whether public or private) of the
Unsupported Company Debt or of the Notes (whether or not the Notes at the time
benefit from any credit enhancement) by Moody's or Standard & Poor's,
respectively, together, in the case of any such change, with a statement of the
date of such occurrence and a reasonably detailed description of the facts and
circumstances underlying such occurrence known to it, and (b) a notice of the
occurrence of a Purchase Event, together with a statement of the date of
occurrence of such Purchase Event and a reasonably detailed description of the
facts and circumstances underlying such occurrence known to it, and which states
that the Company is obligated, upon receipt of a Purchase Notice described in
subparagraph (i) of this paragraph 8B, to purchase Notes pursuant to
subparagraph (i) of this paragraph 8B (an "Event Notice"). Promptly, and in any
event within 5 days following its receipt thereof, the Company will deliver to
each holder of a Note a copy of any Purchase Notice received by it pursuant to
subparagraph (i) of paragraph 8B of this Agreement or the Other Note Agreements
(an "Other Holder Notice").
(iv) The Company's obligation to purchase Notes pursuant to any
Purchase Notice given in respect of a Purchase Event shall be suspended
for up to 60 days following the occurrence of such Purchase Event during
such time as the Company is diligently seeking, and shall have notified
each holder of a Note that it is seeking, a credit enhancement of the
Notes which the Company reasonably believes will permit the Notes to be
rated no less than Aal and AA+ by Moody's and Standard and Poor's,
respectively (or, in either case, the comparable ratings then in
existence). If, within such 60-day period, such a credit enhancement is
legally and validly effected under arrangements to remain in place
through the final maturity of the Notes and such ratings are duly
obtained and written notice and evidence thereof is delivered to each
holder of the Notes, then each Purchase Notice theretofore given in
respect of such Purchase Event shall be deemed to be rescinded and of no
further force or effect. If, at the end of such 60-day period, such
ratings have not been obtained, the Company shall give prompt written
notice to each holder of a Note, and the purchase and sale of any Note or
Notes pursuant to each outstanding Purchase Notice shall occur on the
later of the date specified in such Purchase Notice or the fifth Business
Day following the expiration of such 60-day period, or on such other date
as the holder of such Note shall specify by written notice to the Company.
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8C. ISSUANCE OF NOTES BY THE COMPANY. The Company may elect to satisfy its
obligation to pay for Notes tendered for purchase pursuant to any Purchase
Notice in respect of an ESOT Event by delivery to such holder in exchange for
such Notes of promissory notes of the Company, substantially in the form of
Exhibit C (the "Company Notes"), with a maturity date, in principal amounts and
with repayment schedules identical to the Notes so exchanged that were held by
such holder together with accrued interest to the date of exchange. Company
Notes issued pursuant to this paragraph 8C shall be dated the date of exchange
of the Notes and shall bear interest from that date at the Gross-Up Rate. The
holders of Company Notes shall be entitled to all of the benefits of this
Agreement (other than the provisions of paragraph 7). Upon and after issuance of
the Company Notes (whether pursuant to this paragraph 8C or pursuant to
paragraph 8D), references to "Notes" herein shall be deemed to also include the
Company Notes, except that the provisions of paragraph 7 shall not be applicable
to the Company Notes. The issuance of Company Notes as aforesaid to any holder
is subject to the satisfaction or waiver by such holder of each of the following
conditions (the "Company Note Conditions"):
(i) no Event of Default or Default or Purchase Event shall have occurred
and be continuing and paragraph 6A shall permit the incurrence by the Company of
no less than $1.00 of additional Senior Funded Debt;
(ii) the Company Notes shall be legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws affecting creditors' rights generally and the application of general
equitable principles;
(iii) the Company, at its expense, shall have delivered an opinion of
counsel of national reputation addressed to the holders of the Notes to be
exchanged for Company Notes and satisfactory to such holders to the foregoing
effects and covering such other matters as may be reasonably requested by such
holders;
(iv) the representations and warranties of the Company contained in this
Agreement (other than those specifically relating to the ESOT) shall be repeated
and true in all material respects as of the date of the Company's election to
require such exchange and upon consummation of such exchange (except as
otherwise specified in writing by the Company to such holder); and
(v) the Company shall have reimbursed and shall have agreed in writing in
an instrument satisfactory in form and substance to such holder to hold harmless
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such holder on an after-tax basis (as determined in good faith by such holder)
for all taxes applicable to, or incurred in respect of, such exchange.
If any of the conditions set forth above shall not be met to the
satisfaction to such holder (or if any of the exceptions described in clause
(iv) above shall be unacceptable to such holder) the Company shall pay for the
Notes specified in such Purchase Notice in cash as provided in paragraph 8B.
8D. EXCESS ALLOCATION AND NOTE EXCHANGE. (i) In the event an Excess
Allocation shall exist with respect to the Notes, the Company, at its option,
may require that Notes having an aggregate principal amount equal to the amount
of such Excess Allocation be exchanged by the holders thereof for Company Notes
on the terms set forth in this Section (each an "Exchange"). Such Company Notes
will be dated the date of such Exchange and will at the option of each holder of
a Note subject to Exchange, (a) have a principal amount equal to the principal
amount of the Notes so Exchanged, and bear interest at the Gross-up Rate or (b)
have a principal amount equal to the principal amount of the Notes so Exchanged
plus an amount equal to the Yield-Maintenance Premium at the time of Exchange
applicable thereto and bear interest at the rate of 8.60% pet annum. The Company
shall provide each Noteholder with no less than 30 days' prior written notice of
the date of any proposed Exchange, and each holder of Notes shall specify its
election pursuant to paragraph 8D(i)(a) or (b) no less than 5 days prior to the
scheduled date of such Exchange.
(ii) In the case of an Exchange, the Notes (or portions thereof) to be
Exchanged shall be selected by the ESOT by prorating the principal amount of the
Notes to be Exchanged among the holders of Notes in proportion to the principal
amount of the Notes registered in their respective names.
(iii) The right of the Company to require any Exchange is subject to the
satisfaction or waiver by the holder of each of the Company Note Conditions (as
well as such holder's satisfaction with any exceptions specified in clause (iv)
of such conditions).
9. EVENTS OF DEFAULT.
9A. DEFAULT; ACCELERATION. If any of the following events shall occur and
be continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) default in the payment of any principal (including any Required
Installment Payment) of or Yield-Maintenance Premium on any Note
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when the same shall become due, whether at maturity or at the times
specified in paragraph 4A or 4B or otherwise, either by the terms thereof
or otherwise as herein provided; or default which shall continue for more
than 10 Business Days in the payment of any interest on any Note when the
same shall become due; or
(ii) the Company states or otherwise claims in writing that any of its
obligations under paragraph 8 is not enforceable in accordance with its
terms; or
(iii) default in the performance or breach of any covenant of the
Company or the ESOT contained in paragraph 7 or 8 or in the last sentence
of paragraph 5A and continuance of such default or breach for a period of
15 Business Days after any of the chief executive officer, chief operating
officer, principal financial officer, principal accounting officer or
treasurer of the Company has obtained actual knowledge of such default or
breach; or
(iv) default in the performance, or breach, of any covenant of the
Company or the ESOT in this Agreement (other than as specified in the
definition of ESOT Event and other than a covenant default in whose
performance or whose breach is elsewhere in this paragraph 9A specifically
dealt with), and continuance of such default or breach for a period of 45
days after the earlier of (x) the date the Company shall have given notice
thereof to the holders of the Notes pursuant to the last sentence of
paragraph 5A and (y) the date there shall have been given to the Company
and the ESOT, by the Required Holders, a written notice specifiying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(v) any representation or warranty made by the Company or the ESOT
herein or in any writing furnished pursuant to the requirements of
paragraph 3 or paragraph 5A or 5B of this Agreement shall be false in any
material respect on the date as of which made after the Required Holders
have given written notice to the Company and the ESOT of such falsity; or
(vi) the Company or any Subsidiary defaults in any payment of
principal of or interest on any other obligation for money borrowed (or any
capitalized lease obligation, any obligation under a conditional sale or
other title retention agreement, any obligation issued or assumed as full
or partial payment for property whether or not secured by a purchase money
mortgage or any obligation under notes payable or drafts accepted
representing extensions of credit), other than the Notes, beyond any period
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of grace provided with respect thereto, or the Company or any Subsidiary
fails to perform or observe any other agreement, term or condition
contained in any agreement (other than the Other Note Agreements) under
which any such obligation is created (or if any other event thereunder or
under any such agreement shall occur and be continuing) and such default,
failure, or other event is not annulled or cured within 15 days after there
shall have been given to the Company by the Required Holders a written
notice specifying such default and requiring it to be remedied; provided
that either (a) the aggregate amount of all obligations as to which such a
payment default shall occur and be continuing or as to which such a
default, failure or other event shall have caused, given any holder or
holders of such obligations the right to cause or given any trustee on
behalf of such holders the right to cause, such obligations to become due
prior to any stated maturity, exceeds $35,000,000 or (b) such amount
exceeds $25,000,000 and the effect of such default, failure or other event
is to cause (without any action by or on behalf of the holder or holders of
such obligation), or as a result thereof the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) shall have
caused, such obligation to become due prior to any stated maturity; or
(vii) the Company or a Sigificant Subsidiary or Significant Group of
Subsidiaries makes an assignment for the benefit of creditors or is
generally not paying its debts as such debts become due; or
(viii) any decree or order for relief in respect of the Company or any
Significant Subsidiary or Significant Group of Subsidiaries is entered
under any bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law, whether
now or hereafter in effect (herein called the "Bankruptcy Law"), of any
jurisdiction; or
(ix) the Company or any Significant Subsidiary or Significant Group of
Subsidiaries petitions or applies to any tribunal for, or consents to, the
appointment of, or taking possession by, a trustee, receiver, custodian,
liquidator or similar official of the Company or any Significant Subsidiary
or Significant Group of Subsidiaries, or commences a voluntary case under
the Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a significant
subsidiary or Significant Group of Subsidiries) relating to the Company or
any Significant Subsidiary or Significant Group of Subsidiaries under the
Bankruptcy Law of any other jurisdiction; or
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(x) any such petition or application is filed, or any such proceedings
are commenced, against the Company or any Significant Subsidiary or
Significant Group of Subsidiaries and the Company or such Significant
Subsidiary or Significant Group of Subsidiaries by any corporate act,
consents thereto or acquiesces therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than
30 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company or any Significant subsidiary or Significant Group of
Subsidiaries decreeing the dissolution of the Company or any Significant
Subsidiary or Significant Group of Subsidiaries and such order, judgment or
decree remains unstayed and in effect for more than 60 days; or
(xii) any "reportable event" as such term is defined in section 4043
of ERISA occurs in connection with any ERISA Plan or trust created
thereunder for which the thirty day notice requirement has not been waived
under applicable regulations, or an event occurs requiring the Company or
any ERISA Affiliate to provide security to an ERISA Plan under section
401(a)(29) of the Code; any "prohibited transaction" occurs, as such term
is defined in section 4975 of the Code or in section 406 of ERISA, in
connection with any ERISA Plan or any trust created thereunder; any notice
of intent to terminate an ERISA Plan or ERISA Plans is filed under Title IV
of ERISA by the Company or any ERISA Affiliate, any ERISA Plan
administrator or any combination of the foregoing; any proceedings are
instituted by the PBGC to terminate or to cause a trustee to be appointed
to administer any ERISA Plan; any partial or complete withdrawal is made by
the Company or an ERISA Affiliate from any Multiemployer Plan; any
proceedings are instituted by a fiduciary of any ERISA Plan against the
Company or any Code Affiliate to enforce section 515 of ERISA and such
proceeding shall not have been dismissed within 30 days thereafter; the
Company or a Code Affiliate fails to make a required installment under
section 412(m) of the Code or to pay any amount or amounts which it shall
have become liable to pay to the PBGC or to an ERISA Plan under Title IV of
ERISA on or before the due date; any application is filed by the Company or
a Code Affiliate for a waiver of the minimum funding, standard under
section 412 of the Code or section 302 of ERISA; or any "reorganization"
(as defined in section 418 of the Code or Title IV of ERISA) of any plan
which is a Multiemployer Plan occurs; and each such instance individually,
or any two or more such instances in the aggregate, would, in the
reasonable judgment of the
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Required Holder(s), more likely than not result in liability of the Company
or any Code Affiliate or ERISA Affiliate to the IRS, the PBGC or an ERISA
Plan in an aggregate amount exceeding $5,000,000; or
(xiii) any order, judgment or decree is entered in any proceeding by a
court of competent jurisdiction decreeing that the Plan, the ESOT or the
ESOT Transaction has not been properly established or consummated, as the
case may be (other than as specified in clause (iii) of the definition of
ESOT Event), in any material respect, and such order, judgment or decree
remains unstayed and in effect for more than 60 days and no appeal is filed
by the Company or the ESOT therefrom within 60 days of the time such order,
judgment or decree first becomes appealable; or
(xiv) a final judgment in an amount in excess of $5,000,000 is
rendered against the Company or any Significant Subsidiary or Significant
Group of Subsidiries and, within 60 days after entry thereof, such judgment
is not discharged or execution thereof stayed pending appeal, or within 60
days after the expiration of any such stay, such judgment is not
discharged;
then (a) if such event is an Event of Default specified in clause (viii), (ix)
or (x) of this paragraph 9A with respect to the Company, all of the Notes at the
time outstanding shall automatically become immediately due and payable at the
principal amount thereof together with interest accrued thereon, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company and the ESOT, and (b) if such event is an Event of Default
specified in any other clause of this paragraph 9A, the Required Holder(s) may
at its or their option, by notice in writing to the Company and the ESOT,
declare all of the Notes to be, and all of the Notes shall thereupon be and
become (except that, if such event is an Event of Default specified in clause
(i) of this paragraph 9A with respect to any Note, the holder of such Note may
at its option by notice in writing to the Company and the ESOT, declare such
Note to be, and such Note shall thereupon be and become) immediately due and
payable at the principal amount thereof together with interest accrued thereon
and the Yield-Maintenance Premium, if any, with respect thereto without
presentment, demand, protest or other notice of, any kind, all of which are
hereby waived by the Company and the ESOT, provided that the Yield-Maintenance
Premium, if any, with respect to each Note shall be due and payable upon such
declaration only if (x) such event is an Event of Default specified in any of
clauses (i) to (vii), inclusive and clauses (xii) to (xiv), inclusive (y) the
holder or holders making such declaration shall have given to the Company and
the ESOT, at least 10 Business Days before such declaration, written notice
stating its or their intention so to declare the Notes to be immediately due and
payable and identifying one or
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more such Events of Default whose occurrence on or before the date of such
notice permits such declaration and (z) one or more of the Events of Default so
identified shall be continuing at the time of such declaration. Nothing in this
Agreement shall permit (i) a transfer of assets of the ESOT to any Person in
excess of the amount permitted under Treasury Regulation Section 54.4975-7(b)(6)
or (ii) if a holder of any Note is a disqualified person within the meaning of
Section 4975 of the Code or the Regulations thereunder, the transfer of assets
of the ESOT to.such holder except upon the failure of the ESOT to make payment
of regularly scheduled payments of principal and interest on such Notes, and
then only to the extent of such failure.
9B. OTHER REMEDIES. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement and such Note by exercising such remedies as are available
to such holder in respect thereof under applicable law, either by suit in equity
or by action at law, or both, whether for specific performance of any covenant
or other agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement upon you
or any other holder of any Note is intended to be exclusive of any other remedy,
and each and every such remedy shall be cumulative and shall be in addition to
every other remedy conferred herein or now or hereafter existing at law or in
equity or by statute or otherwise.
9C. RESCISSION OF ACCELERATION. At any time after any declaration of
acceleration of any of the Notes shall have been made pursuant to paragraph 9A
by any holder or holders of the Notes and before a judgment or decree for the
payment of money due has been obtained by such holder or holders, the Required
Holder(s) may, by written notice to the Company and the ESOT and to the other
holders of the Notes, rescind and annul such declaration and its consequences,
provided that (i) the principal of and interest on the Notes, which shall have
become due otherwise than by such declaration of acceleration shall have been
duly paid, and (ii) all Events of Default, other than the nonpayment of
principal of and interest on the Notes which have become due solely by any such
declaration of acceleration, shall have been cured or expressly waived by the
Required Holder(s). No rescission or annulment referred to above shall affect
any subsequent Default or any right, power or remedy arising out of such
subsequent Default.
9D. LIMITED RECOURSE. Notwithstanding any other provision of this Agreement
to the contrary, the only assets of the ESOT that may be given as collateral for
the ESOT's obligations under this Agreement and the Notes are the shares of
Employer Capital Stock purchased with the proceeds of the sale of the Notes. No
person entitled to payment under this Agreement and the Notes shall
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have any right to assets of the ESOT other than (i) collateral given for the
ESOT's obligations under this Agreement and the Notes, (ii) contributions (other
than contributions of Company securities) that are made pursuant to the Plan to
enable the ESOT to meet its obligations under this Agreement and the Notes, and
(iii) earnings attributable to such collateral and the investment of such
contributions. The payments made by the ESOT with respect to this Agreement and
the Notes during a calendar year shall not exceed an amount equal to the sum of
such contributions and earnings received during or prior to such year less such
payments received in prior years.
10. REPRESENTATIONS AND WARRANTIES. The Company and, in the case of
paragraph 100 (other than clause (ii) thereof), the ESOT, as to the ESOT,
represent and warrant that:
10A. ORGANIZATION; CORPORATE AUTHORITY. The Company and each of its
Restricted Subsidiaries are corporations duly organized and validly existing in
good standing under the laws of their respective states of incorporation; have
all requisite power, and have all material governmental licenses,
authorizations, consents and approvals, necessary to own their assets and carry
on their business as now being conducted, except where the failure to have such
power, licenses, authorizations, consents and approvals would not, individually
or in the aggregate, have a material adverse effect on the consolidated
financial position, shareholders' equity or results of operations of the Company
and its Subsidiaries taken as a whole; and are qualified to do business in all
jurisdictions in which the nature of the business conducted by them makes such
qualification necessary and where failure to do so would have a material adverse
effect on the consolidated financial position, shareholders' equity or results
of operations of the Company and its Subsidiaries taken as a whole. The
execution, delivery and performance of this Agreement and the Plan Documents,
and compliance with provisions hereof and the consummation of any other
transactions contemplated hereby and by the Plan Documents, are within the
corporate power of the Company, have been duly authorized by all necessary
corporate action and constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms (subject, as to enforceability, to the effect of bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting the enforcement of
creditors' rights generally and the application of principles of equity.)
10B. FINANCIAL STATEMENTS; SEC REPORTS. The Company has furnished you with
the audited consolidated balance sheets of the Company and its Subsidiaries at
December 31, 1988 and December 31, 1987 and the related audited consolidated
statements of earnings, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1988 all reported on
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by Peat Marwick Main & Co. (the "Historical Financial Statements"). The
Historical Financial Statements (i) are complete and correct in all material
respects, (ii) have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis, and (iii) present fairly,
in all material respects, the consolidated financial position of the Company and
its Subsidiaries at the dates indicated and their results of operations and cash
flows for the periods indicated. The Company has furnished you with the
following documents and financial statements: (a) copies of the Company's Annual
Report filed with the Commission on Form 10-K for its 1988 fiscal year and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1989
(collectively, the "SEC Reports"), and (b) the Confidential Direct Placement
Memorandum submitted to you by The First Boston Corporation, dated April 1989
(together with all schedules and appendices thereto, the "Placement
Memorandum"). The SEC Reports have been prepared in conformity with the rules
and regulations of the Commission applicable thereto, and, in accordance with
such rules and regulations, accurately describe the business conducted by the
Company and its Subsidiaries and the properties owned and operated in connection
therewith. The Historical Financial Statements, the SEC Reports, the Placement
Memorandum and all other documents and reports delivered by or on behalf of the
Company to you in connection with the transactions contemplated by this
Agreement (which other documents and reports are described in the Company's
letter to you dated the date hereof), are herein collectively called the
"Disclosure Documents". The Disclosure Documents did not, as of their respective
dates, and taken as a whole, and this Agreement does not as of the date hereof
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. There is no fact peculiar to the
Company which materially adversely affects or in the future would reasonably be
expected to (so far as the Company can now foresee) materially adversely affect
the business or prospects or the consolidated financial position, shareholders'
equity or results of operation of the Company and its Subsidiaries taken as a
whole which has not been set forth in this Agreement or in the Disclosure
Documents. Neither the Company nor any of its Subsidiaries has sustained since
December 31, 1988 any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree which is
material to the Company and its consolidated Subsidiaries considered as a whole,
otherwise than as set forth or contemplated in the Disclosure Documents; and,
since the respective dates as of which information is given in the Disclosure
Documents, there has not been any material change in the capital stock or
long-term or short-term debt of the Company or in any of its Restricted
Subsidiaries or in the consolidated capitalization of the Company and its
consolidated Subsidiaries, or any material adverse change, or any development
which the Company has reasonable cause to believe will involve a prospective
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material adverse change, in or affecting the general affairs, management,
financial position, shareholders' equity or results of operations of the Company
and its consolidated Subsidiaries considered as a whole, otherwise than as set
forth or contemplated in the Disclosure Documents.
10C. ACTIONS PENDING. There are no actions or proceedings filed or
investigations pending or (to the best knowledge of the Company) threatened
against the Company or the ESOT which question the validity or legality of or
seek damages in connection with this Agreement or any action taken or to be
taken pursuant to this Agreement or any of the transactions contemplated hereby
(including the ESOT Transaction) and no order or judgment has been issued or
entered restraining or enjoining the Company or the ESOT from the consummation
of the transactions contemplated by this Agreement (including the ESOT
Transaction) or which affects the ESOT or the Company or any of the ESOT's or
the Company's properties or rights, or any of the ESOT's or the Company's
affiliates, associates, officers or directors in relation to such matters, nor
is there any action or proceeding which involves a significant possibility of an
adverse determination which would have any such effect. There are no legal or
governmental proceedings pending to which the Company or any of its Subsidiaries
is a party or of which any property of the Company or any of its Subsidiaries is
the subject other than legal or governmental proceedings which, if determined
adversely to the Company and its Subsidiaries, would not in the aggregate have a
material adverse effect on the business or prospects or the financial position,
shareholders' equity or results of operations of the Company and its
Subsidiaries taken as a whole; and no such proceedings are known by the Company
to be threatened or contemplated by governmental authorities or threatened by
others.
10D. TAXES. The Company has and each of its Subsidiaries has filed all
Federal, State and other income tax returns which are required to be filed, and
each has paid all taxes as shown on such returns and on all assessments received
by it to the extent that such taxes have become due, except such taxes as are
being contested in good faith by appropriate proceedings for which adequate
reserves have been recorded on the books of the Company and its Subsidiaries in
accordance with generally accepted accounting principles. Federal income tax
returns of the Company and its Subsidiaries have been examined and reported on
by the taxing authorities or closed by applicable statutes and satisfied for all
fiscal years prior to and including the fiscal year ended on December 31, 1986.
10E. TITLE TO PROPERTY. The Company and its Restricted Subsidiaries have
good and marketable title to all real property and good title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Disclosure
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Documents or such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and its Restricted Subsidiaries; and any real property
and buildings held under lease by the Company and its Restricted Subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
Restricted Subsidiaries.
10F. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the execution nor
delivery of this Agreement, or the Plan Documents, nor the offering, issuance
and sale of the Notes or the consummation of the ESOT Transaction, nor
fulfillment of nor compliance with the terms and provisions hereof and thereof
will conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, or result in any violation of, or result in
the creation of any Mortgage upon any of the material properties or assets of
the Company or any of its Subsidiaries pursuant to, the charter or by-laws of
the Company or any of its Subsidiaries, any award of any arbitrator or any
agreement, instrument, order, judgment or decree, to which the Company or any of
its Subsidiaries or any of their respective properties is subject. The Company
is not a party to, or otherwise subject to any contract or agreement (including
its charter) which limits the amounts of, or otherwise imposes restrictions on
the incurring of, obligations of the type to be evidenced by its obligations
under paragraph 8. The Company does not have outstanding any Debt which is
senior in right of payment to the Company's obligations under paragraph 8(a).
10G. OFFERING OF NOTES. Neither the Company, the ESOT nor The First Boston
Corporation (the only Person authorized or employed by the Company as agent,
broker, dealer or otherwise in connection with the offering or sale of Notes, or
any similar security of the ESOT) has, directly or indirectly, offered any of
the Notes, or any similar security of the ESOT for sale to, or solicited any
offers to buy any of the Notes, or any similar security of the ESOT from, or
otherwise approached or negotiated with respect thereto with, any Person or
Persons other than you, the Other Purchasers and no more than 75 other
institutional investors; and neither the Company, the ESOT nor any agent acting
on their behalf has taken or will take any action which would subject the
issuance or sale of any of the Notes to the provisions of section 5 of the
Securities Act or violate the provisions of any securities or Blue Sky law of
any applicable jurisdiction.
10H. BROKER'S OR FINDER'S COMMISSIONS. No broker's or finder's fee or
commission will be payable by the Company or the ESOT with respect to the
issuance and sale of the Notes or the transactions contemplated
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hereby except for the fees paid to The First Boston Corporation, and the Company
agrees that such fees shall be paid by it and that it will hold you harmless
from any claim, demand or liability for broker's or finder's fees or commissions
alleged to have been incurred in connection with this transaction.
10I. MARGIN REGULATIONS. Neither the Company nor the ESOT will, directly or
indirectly, use any of the proceeds of the issue and sale of the Notes or
otherwise take or permit to be taken any action which would result in the issue
and sale of the Notes, or the carrying out of any of the other transactions
contemplated hereby or by the ESOT Transaction, being violative of Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System.
10J. INVESTMENT COMPANY ACT. Neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
10K. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any of its
Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
10L. GOVERNMENTAL CONSENTS, ETC. No consent, approval or authorization of,
or the making of any declaration or filing with, any governmental authority is
required as a condition to the valid execution or delivery of this Agreement or
the Plan Documents or the consummation of the transactions contemplated hereby
and thereby except the filing of the Plan Documents with the IRS as contemplated
by paragraph 5F.
10M. ERISA. (i) Neither the Company nor any ERISA Affiliate has engaged in
a transaction in connection with which the Company could be subject to a
material liability for either a civil penalty assessed pursuant to section
502(i) of ERISA or a tax imposed by section 4975 of the Code.
(ii) There has been no termination of an ERISA Plan or trust created under
any ERISA Plan that would give rise to a material liability to the PBGC on the
part of the Company or an ERISA Affiliate. No material liability to the PBGC has
been or is expected by the Company to be incurred with respect to any ERISA Plan
by the Company or an ERISA Affiliate. The PBGC has not instituted proceedings
to terminate any ERISA Plan which is maintained or is to be maintained by the
Company or an ERISA Affiliate. There exists no condition or set of circumstances
which presents a material risk of termination or partial
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termination of any ERISA Plan by the PBGC or restoration of any ERISA Plan
heretofore terminated. The Company and each Code Affiliate is current with all
premiums to the PBGC.
(iii) Full payment has been made of all amounts which are required under
the terms of each ERISA Plan to have been paid as contributions to such ERISA
Plan as of the last day of the most recent fiscal year of such ERISA Plan ended
on or before the date of this Agreement, and no accumulated funding deficiency
(as defined in section 302 of ERISA and section 412 of the Code), whether or not
waived, exists with respect to any ERISA Plan or any employee pension benefit
plan maintained by the Company or a Code Affiliate. The Company and each Code
Affiliate is current with all required installments under section 412(m) of the
Code.
(iv) The current value of the benefit liabilities (as defined in section
4001(a)(16) of ERISA) of each ERISA Plan does not exceed the fair market value
of the assets of such ERISA Plan. Neither the Company nor any Code Affiliate is
required to provide security to an ERISA Plan or an employee pension benefit
plan maintained by a Code Affiliate under section 401(a)(29) of the Code. No
lien under section 412(n) of the Code or sections 312(f) or 4068 of ERISA has
been or is reasonably expected by the Company to be imposed on the assets of the
Company or any ERISA Affiliate.
(v) Neither the Company nor any ERISA Affiliate has made a complete or
partial withdrawal (or a reduction in contribution base units which if continued
would result in a partial withdrawal) from a Multiemployer Plan which has
resulted in, or is reasonably expected by the Company to result in, a material
withdrawal liability.
(vi) All employee pension benefit plans (as defined in section 3(2) of
ERISA) maintained by the Company or an ERISA Affiliate which are intended to be
"qualified" are "qualified" under section 401(a) of the Code. All employee
benefit plans (as defined in section (3) of ERISA) maintained by the Company or
an ERISA Affiliate have been administered substantially in compliance with ERISA
and the applicable provisions of the Code. There are no pending issues before
the IRS or any court of competent jurisdiction related to the qualification of
the Plan except for the filing of the Plan and the ESOT with the IRS as
contemplated by paragraph 5F. Neither the Company nor any Code Affiliate has any
material liability under the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
(vii) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not involve any transaction which is
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subject to the prohibitions of section 406 of ERISA or in connection with which
a tax could be imposed pursuant to section 4975 of the Code. The representation
by the Company in the preceding sentence is made in reliance upon and subject to
the accuracy of your representation in paragraph 11 as to the source of funds
used to pay the purchase price of the Notes.
10N. THE PLAN. (i) The Plan is an "employee" stock ownership plan" within
the meaning of section 4975(e)(7) of the Code and is qualified under section
401(a) of the Code. The ESOT has been duly constituted in accordance with the
Trust Agreement, is validly existing and is tax-exempt under section 501(a) of
the Code. The ESOT has all requisite power and authority to own its properties
and assets. The execution, delivery and performance of this Agreement and the
consummation of the ESOT Transaction by the parties thereto will not involve any
transaction which is subject to the prohibitions of section 406 of ERISA and
will not otherwise constitute a violation of, or give rise to any liability
under, any other provision of Title I of ERISA or section 4975 of the Code. The
Employer Capital Stock constitutes "employer securities" within the meaning of
section 409(l) of the Code. The issuance and sale of the Notes hereunder to you
by the ESOT qualifies as a "securities acquisition loan" within the meaning of
section 133 of the Code and, as a result thereof, 50% of the interest on the
Notes is excludible from the gross income of any holder of the Notes for Federal
income tax purposes, assuming that such holder is a Qualified Holder.
(ii) Neither the Plan nor the ESOT has incurred any Debt and, as of the
Closing, neither will have incurred any Debt other than Debt represented by the
Notes. The Plan and the ESOT have been established by the Company for a valid
corporate purpose. The Company has delivered to you true and correct copies of
the Plan Documents and all other documents having the legal effect of governing
the terms or administration of the Plan and the ESOT. The ESOT Transaction as of
the date hereof has been, and after giving effect to the transactions
contemplated hereby will be, duly and validly consummated and all Plan Documents
are and will be legal, valid, binding and enforceable obligations of the
respective parties thereto (subject, as to enforceability, to the effect of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and the application of
general equitable principles).
(iii) It is the present intention of the Company to establish and maintain
the ESOT in full force and effect as "an employee stock ownership plan" within
the meaning of section 4975(e)(7) of the Code and section 407(d)(b) of ERISA.
10O. REPRESENTATIONS AS TO THE TRUSTEE. (i) The Trustee has all requisite
power and authority to execute and deliver and to perform all of the
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obligations of the ESOT under this Agreement and the Notes and to carry out the
ESOT Transaction; (ii) the execution, delivery and performance by the Trustee of
this Agreement and the Notes and the consummation by the ESOT of the ESOT
Transaction will not violate any provision of any law, rule, regulation
(including, without limitation, Regulation X of the Board of Governors of the
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the Trustee;
(iii) this Agreement constitutes, and the Notes when delivered hereunder will
constitute, legal, valid and binding obligations of the ESOT enforceable against
the ESOT in accordance with their terms (subject, as to enforceability, to the
effect of bankruptcy, insolvency, moratorium and similar laws affecting the
enforcement of creditors' rights generally and the application of principles of
equity) and (iv) there are no actions, suits or proceedings pending or, to the
best knowledge of the Company or the ESOT, threatened against or affecting the
ESOT or its properties before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which (a) draw
into question the validity of the Trust Agreement, this Agreement, the Notes or
the ESOT Transaction or (b) if determined adversely to the ESOT, would
materially adversely affect the ability of the Trustee to perform its
obligations under the Trust Agreement or of the ESOT to perform its obligation
under this Agreement or the Notes or of any of them to consummate the ESOT
Transaction.
The following representations and warranties are made only by the Trustee
in its individual capacity and not by the Company or the ESOT: The Trustee, in
its individual capacity, represents and warrants that (1) the Trustee is a New
York banking corporation with corporate trust powers duly organized, validly
existing and in good standing under the laws of the State of New York and has
all requisite power and authority, corporate and otherwise, to conduct its
business and to execute and deliver, and to perform all its obligations under,
the Trust Agreement; (2) the Trustee is not in default under any provision of
any law, rule, regulation (including, without limitation, Regulation X of the
Board of Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Trustee or any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Trustee is a party or
by which it or its properties are bound or affected, which default would
materially affect the ability of the Trustee to perform its obligations under
the Trust Agreement; and (3) the execution, delivery and performance by the
Trustee of the Plan Documents, this Agreement and the Notes and the consummation
by the ESOT of the ESOT Transaction do not and will not violate any provision of
the articles of association or by-laws of the Trustee.
10P. POLLUTION AND OTHER REGULATIONS. Except as otherwise previously
disclosed to you in writing, the Company is in compliance in all
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material respects with all laws and regulations, including, without limitation,
those relating to pollution and environmental control, equal employment
opportunity and employee safety in all jurisdictions in which it is presently
doing business except where the failure to do so would not have a material
adverse effect on the consolidated financial position, shareholders' equity or
results of operations of the Company and its Subsidiaries taken as a whole.
11. REPRESENTATIONS OF PURCHASER. You represent, and in making this sale to
you it is specifically understood and agreed, that you (i) are an "accredited
investor" within the meaning of Regulation 501(a) under the Securities Act, and
(ii) are not acquiring the Notes to be purchased by you hereunder with a view to
or for sale in connection with any distribution or public offering thereof
within the meaning of the Securities Act, provided that the disposition of your
property shall at all times be and remain within your control.
You also represent that the funds being used by you to pay the purchase
price of the Notes being purchased by you hereunder constitute either part of
your general asset account (or your general assets if you are not an insurance
company) or constitute assets allocated to (i) a separate account (as defined in
section 3 of ERISA) which is a "guaranteed contract separate account" (as
defined in Department of Labor ("DOL") Prohibited Transaction Exemption 81-82
issued September 18, 1981), in which case you further warrant that all
requirements for an exemption under DOL Prohibited Transaction Exemption 81-82
are met with respect to the use of such funds to pay the purchase price of the
Notes; (ii) a collective investment fund (as defined in section IV of DOL
Prohibited Transaction Exemption 80-51 issued July 21, 1980) maintained by you,
in which case you further warrant all requirements for an exemption under DOL
Prohibited Transaction Exemption 80-51 are met with respect to use of such funds
to pay the purchase price of the Notes; or (iii) an investment fund (as defined
in Part V of DOL Prohibited Transaction Exemption 84-14, issued March 13, 1984),
in which case you further warrant-that all requirements for an exemption under
DOL Prohibited Transaction Exemption 84-14 are met with respect to the use of
such funds to pay the purchase price of the Notes.
12. DEFINITIONS AND ACCOUNTING MATTERS, ETC. As used herein, the following
terms shall have the following meanings (terms defined in the singular to have
the same meanings when used in the plural and vice versa):
12A. YIELD-MAINTENANCE TERMS.
"AMT Liability" shall mean the amount of the addition to the Indemnitee's
Federal income tax liability determined under Section 55(a) of the Code.
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"Annualized Reinvestment Yield" shall mean the yield resulting from the
following formula:
( 1 + Reinvestment Yield )2 - 1
------------------
2
"Called Principal" shall mean, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to paragraph 5B or purchased or
exchanged pursuant to paragraph 8B, 8C or 8D or is declared to be immediately
due and payable pursuant to paragraph 9A, as the context requires.
"Current AMT Preference" shall mean 50% for tax years beginning before
January 1, 1990, and 75% for subsequent tax years.
"Discounted Value" shall mean, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments with
respect to such Called Principal from their respective scheduled due dates to
the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on an annual
basis) equal to the Annualized Reinvestment Yield plus .25% per annum with
respect to such Called Principal.
"Preference Increase" shall mean the excess, if any, of the percentage of
the Statutory Exclusion that is treated as a preference or adjustment (other
than pursuant to Section 56(f) or (g) of the Code, or any successor provision
thereto) pursuant to the Change of Law over the Current AMT Preference.
"Proration Fraction" shall mean, for tax years of the Indemnitee beginning
on or before June 7, 1992, a fraction, the numerator of which is the interest
received by the Indemnitee on Notes held by the Indemnitee during the taxable
year, multiplied by the Statutory Exclusion, and the denominator of which is the
Total Section 133 Exclusions. For subsequent tax years, the same numerator shall
be used but the denominator will be the excess of the Indemnitee's alternative
minimum taxable income (as defined in Section 55(b)(2) of the Code) over the
Indemnitee's federal taxable income as otherwise calculated.
"Reinvestment Yield" shall mean, with respect to the Called Principal of
any Note, the yield to maturity implied by (i) the yields reported, as of 10:00
A.M. (New York City time) on the Business Day next preceding the Settlement Date
with respect to such Called Principal, on the display designated as "Page 678"
on the Telerate Service (or such other display as may replace Page 678 on the
Telerate Service) for actively traded U.S. Treasury securities having a maturity
equal to the Remaining Average Life of such Called Principal as of such
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Settlement Date, or if such yields shall not be reported as of such time or the
yields reported as of such time shall not be ascertainable, or (ii) the Treasury
Constant Maturity Series yields reported, for the latest day for which such
yields shall have been so reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for
actively traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date. Such
implied yield shall be determined, if necessary, (a) by converting U.S. Treasury
bill quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) by linear interpolation between reported yields.
"Remaining Average Life" shall mean, with respect to the Called Principal
of any Note, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) each Remaining Scheduled Payment of such Called
Principal (but not of interest thdreon) by (b) the number of years (calculated
to the nearest one-twelfth year) which will elapse between the Settlement Date
with respect to such Called Principal and the scheduled due date of such
Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon calculated at the Gross-up Rate that would be due on or after the
Settlement Date with respect to such Called Principal if no payment of such
Called Principal were made prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
paragraph 5B or purchased or exchanged pursuant to paragraph 8B, or 8C or
exchanged pursuant to paragraph 8B, 8C or 8D or is declared to be immediately
due and payable pursuant to paragraph 10A, as the context requires.
"Total Section 133 Exclusions" shall mean the total amount of interest
excludable by the Indemnitee under Section 133(a) of the Code for the tax year
in question.
"Yield-Maintenance Premium" shall mean, with respect to any Note, a premium
equal to the excess, if any, of the Discounted Value of the Called Principal of
such Note over the sum of (i) such Called Principal plus (ii) interest accrued
thereon as of (including interest due) the Settlement Date with respect to such
Called Principal. The Yield-Maintenance Premium shall in no event be less than
zero.
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12B. OTHER DEFINED TERMS.
"Additional Payment Period" shall mean, as to any Indemnitee, the period
from and at all times after the earliest date as of which more than the then
current Inclusion Rate of the interest on such Indemnitee's Note (or interest
therein) is included in such Indemnitee's Federal Gross Income as a result of
one or more Gross-Up Events until the earlier of (i) the latest date as of which
the then current Inclusion Rate or less of the interest on such Indemnitee's
Note (or interest thereon) is included in such Indemnitee's Federal Gross Income
and (ii) payment in full of such Indemnitee's Note, together with accrued
interest and premium (including Market Premium), if any, thereon.
"Additions to Tax" shall have the meaning specified in paragraph 7A.
"Adjustment Fraction" shall mean the following fraction resulting from the
following formula:
(1 - (Xo x Fo)) x (1 - Fn)
--------------------------
(1 - (Xn x Fn)) x (1 - Fo)
where
Xo = 50% (the Inclusion Rate on the date hereof)
Fo = 34% (the Federal Tax Rate on the date hereof)
Xn = the new Inclusion Rate
Fn = the new Federal Tax Rate
The Adjustment Fraction will be rounded to three decimal places with rounding up
if the fourth decimal place is .0005 or higher, and rounded down otherwise.
"Affiliate" shall mean, with respect to any Person, any Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
correlative meanings to the foregoing.
"Attributable Debt" in respect of any Sale and Lease-Back Transaction shall
mean, as of the time of the determination, the lesser of (i) the sale price of
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the Principal Property so leased muitiplied by a fraction the numerator of which
is the remaining portion of the base term of the lease included in such
transaction and the denominator of which is the base term of such lease, and
(ii) the total obligation (discounted to present value at the highest rate of
interest specified by the terms of any Funded Debt of the Company then
outstanding compounded semiannually) of the lessee for rental payments (other
than amounts required to be paid on account of property taxes as well as
maintenance, repairs, insurance, water rates and other items which do not
constitute payments for property rights) during the remaining portion of the
base term of the lease included in such transaction.
"Bankruptcy Law" shall have the meaning specified in paragraph 9A and shall
include, but not be limited to, Title 11 of the United States Code.
"Board of Directors" shall mean either the board of directors of the
Company or any duly authorized committee of that board.
"Business Day" shall mean any day which is not a Saturday or a Sunday or a
bank holiday in New York, New York.
"Change of Law" shall mean, with respect to any Indemnitee, any amendment
to the Code or the enactment of or amendment to any other statute enacted by the
Congress of the United States of America, or any administrative or judicial
interpretation thereof, or any temporary or final regulation promulgated by the
Treasury Department, after the date hereof, which, in the written opinion of
independent counsel for such Indemnitee reasonably satisfactory to the ESOT and
the Company (and at the Company's expense), consider that it is more likely than
not that such change,
(i) reduces any Tax Allowance allowable to such Indemnitee in
computing any Federal tax, or
(ii) imposes any new or additional Federal tax (including, but not
limited to, minimum, preference or excise taxes) upon, extends any such tax
to or otherwise increases the liability for any such tax of such Indemnitee
(including, without limitation, by changing the provisions of Section
812(g) of the Code),
in either case solely or specifically by reason of owning, acquiring or
disposing of obligations the interest on which is partially exempt from Federal
income taxation under Section 133 of the Code or any similar or successor
provision; provided that a Change of Law does not include (a) any change in the
Inclusion Rate or the Federal Tax Rate or the alternative minimum tax rate or
(b) any change of general application to all obligations.
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"Closing" shall have the meaning specified in paragraph 2.
"Code" shall mean the Internal Revenue Code of 1986.
"Code Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company is treated as a "single employer"
under subsection (b), (c), (m), (n) or (o) of section 414 of the Code.
"Commission" shall mean the United States Securities and Exchange
Commission and any successor Federal agency having similar powers.
"Company" shall have the meaning specified in the introduction to this
Agreement and shall include any successor thereto.
"Company Note Conditions" shall have the meaning specified in paragraph 8C.
"Company Notes" shall have the meaning specified in paragraph 8B.
"Company Obligations" shall have the meaning specified in paragraph 6B.
"Current Debt" shall mean any obligation for borrowed money and any notes
payable and drafts accepted representing extensions of credit, whether or not
representing obligations for borrowed money, payable on demand or within a
period of one year from the date of the creation thereof.
"Debt" shall nean Funded Debt and Current Debt.
"Designated Event" shall mean (i) a merger, acquisition or consolidation as
a result of which holders of the voting stock of the Company immediately prior
to such merger, acquisition or consolidation hold less than 50% of the voting
stock of the new or surviving entity; (ii) a recapitalization, including any
special dividend and any other extraordinary distribution of assets or
obligations of the Company or any of its Subsidiaries to shareholders of the
Company in an amount aggregating, during any twelve-month period, [10%] or more
of the Company's Tangible Stockholders Equity or (iii) any repurchase by the
Company or any of its Subsidiaries of [10%] or more of the Company's outstanding
Common Stock during any twelve-month period, excluding any repurchases of shares
of Common Stock effectuated within twelve months of the date of this Agreement
using the proceeds of the ESOT Transaction.
"Disclosure Documents" shall have the meaning specified in paragraph
10B.
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"DOL" shall have the meaning specified in paragraph 11.
"Employer Capital Stock" shall mean the Company's Series One ESOP
Convertible Preference Stock.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA, as in
effect at the date of this Agreement and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Company would be deemed to be a "single
employer" within the meaning of section 414(b) or (c) of the Code.
"ERISA Plan" shall mean any employee pension benefit plan within the
meaning of section 3(2) of ERISA maintained or contributed to by the Company or
an ERISA Affiliate.
"ESOT" shall have the meaning specified in the introduction to this
Agreement and shall include any successor thereto.
"ESOT Default" shall have the meaning specified in subparagraph (v) of
paragraph 8A.
"ESOT Event" shall mean the occurrence for any reason whatsoever (and
whether such occurrence shall be voluntary or come about or be effected by
operation of law or otherwise) of any of the following events:
(i) the ESOT or the Plan shall have been terminated, the ESOT shall
fail to hold "qualifying employer securities" or otherwise fail to satisfy
any applicable condition necessary to provide that the indebtedness
evidenced by the Notes constitutes a "securities acquisition loan" within
the meaning of section 133 of the Code or the Company shall fail to obtain
from the IRS by the Qualification Date a favorable written determination to
the effect that the Plan is an "employee stock ownership plan" within the
meaning of section 4975(e)(7) of the Code and is qualified under section
401(a) of the Code and that the ESOT meets the requirements for tax
exemption under section 501(a) of the Code.
"ESOT Transaction" shall mean the execution and delivery of the Notes by
the ESOT and the purchase by the ESOT of shares of Employer Capital Stock from
the Company pursuant to the Stock Purchase Agreement for an aggregate purchase
price of $357,500,000.
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"Event of Default" shall mean any of the events specified in paragraph 9A,
if any requirement in connection with such event for the giving of notice, or
the lapse of time, or both, or the happening of any further condition, event or
act has been satisfied, and "Default" shall mean any of such events, whether or
not any such requirement has been satisfied.
"Excess Allocation" shall mean the excess of (i) the value of shares to be
allocated to employees as required under the terms of the Plan during any given
period over (ii) the amount which may be allocated pursuant to scheduled
payments of principal and interest on the Notes.
"Exchange" shall have the meaning specified in paragraph 8D.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Federal Gross Income" shall mean gross income within the meaning of the
Code.
"Federal Reserve Board Statistical Release" shall mean the weekly
Statistical Release H.15(519) of the Federal Reserve Board of Governors or any
successor or substitute publication.
"Federal Tax Rate" shall mean, (i) in the case of a life insurance company,
the maximum incremental percentage rate from time to time applicable to the
taxable income of such company as determined under section 801 of the Code, or
any successor thereto, (ii) in the case of any other insurance company, the
maximum incremental percentage rate from time to time applicable to the taxable
income of such company as determined under section 831 of the Code, or any
successor provision, (iii) in the case of any other Person the maximum
incremental percentage rate from time to time applicable to the taxable income
of any ordinary business corporation imposed under section 11 of the Code, or
any successor thereto and (iv) in the case of a "regulated investment company"
(as defined in Section 851 of the Code) the maximum incremental percentage rate
from time to time applicable to the taxable income of an individual imposed
under Section 1 of the Code, or any successor thereto.
"Fully Tax-Exempt Rate" shall mean the rate of 7.10% per annum.
"Funded Debt" of any Person shall mean the principal of (i) all
indebtedness of such Person which by its terms is not payable on demand and
which matures by its terms, or which by its terms such Person has the right at
its option to renew or extend to a date more than one year after the date of
determination, whether outstanding on the date of execution of this Agreement or
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thereafter created, incurred or assumed, and which is (a) for money borrowed or
(b) evidenced by a note or similar instrument given in connection with the
acquisition of any business, properties or assets, including securities, or
which constitutes the deferred purchase price of any such business, properties
or assets (other than accounts payable, due within 12 months, incurred in the
ordinary course of business), (ii) any indebtedness of others of the kinds
described in the preceding clause (i) for the payment of which such Person is
responsible or liable as guarantor or otherwise (including the Notes in the case
of the Company), and (iii) amendments, renewals and refundings of any such
indebtedness; provided, however, that such term shall not include any
obligations under leases (other than capital leases) or any guarantees of
obligations of others under leases (other than capital leases). It is understood
that for the purposes of this definition the term "principal" when used at any
date with respect to any indebtedness shall mean the amount of principal of such
indebtedness that would be declared due and payable on that date pursuant to the
terms of such indebtedness is such indebtedness could then be declared to be due
and payable.
"Gross-Up Event" shall mean, with respect to any Indemnitee, (a) the
failure by such Indemnitee to receive a Qualifying Opinion of Counsel, requested
pursuant to paragraph 7G, within 45 days after the receipt by the Company of
such request therefor and agreement by the Indemnitee and the Company as to the
identity of such counsel, or (b) an increase in such Indemnitee's Federal income
tax liability, a reduction of such Indemnitee's net operating loss, an offset
liability against any Federal tax refund or other amount otherwise due such
Indemnitee with respect to such Indemnitee's Federal tax liability, or a
utilization of an amount otherwise available to such Indemnitee as a credit
against Federal tax caused by and computed solely with reference to an inclusion
in such Indemnitee's Federal Gross Income (other than by reason of a Change of
Law) of a percentage of the interest received or accrued by such Indemnitee with
respect to such Indemnitee's Note exceeding the then current Inclusion Rate
following or as a consequence of any one or more of the events set forth below:
(i) the issuance of an IRS Notice to such Indemnitee;
(ii) the occurrence of a final decision, judgment, decree or other
order by the Tax Court or by any other court of competent jurisdiction with
respect to such Indemnitee or any other Indemnitee and the expiration of
the period for appealing such decision without an appeal being docketed; or
(iii) the execution of a closing agreement by such Indemnitee under
section 7121 of the Code.
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"Gross-Up Rate" shall mean the rate of 10.75% per annum.
"Historical Financial Statements" shall have the meaning specified in
paragraph 10B.
"Inclusion Rate" shall mean the percentage of interest income received or
accrued by an entity which is a Qualified Holder on securities acquisition loans
which may not be excluded from such entity's Federal Gross Income.
"Indemnitee" shall mean you and your direct and indirect successors and
assigns in any of the Notes (or any interest therein), including any assignee,
participant or other transferee of all or any portion of any Indemnitee's
interest in the Notes (whether or not the Indemnitee has an interest in any Note
at the time amounts are payable to such Indemnitee hereunder) and any affiliated
group (within the meaning of section 1504 of the Code) of which any Indemnitee
is a member; provided that, for purposes of paragraph 7A or 7B, the term
"Indemnitee" shall not include any assignee, participant or other transferee
that is not a Qualified Holder with respect to the Notes at the time the
assignee, participant or other transferee acquires an interest in the Notes, and
shall not include any Person that no longer qualifies as a Qualified Holder
(other than by reason of a Change of Law) but only with respect to the period
such Person owned or held an interest in the Notes while so disqualified.
"Indemnitee's Note" shall mean, with respect to any Indemnitee, the Note
(or participation or other interest in the Note) held by such Indemnitee at any
time.
"IRS" shall mean the United States Internal Revenue Service and any
successor Federal agency having similar powers.
"IRS Notice" shall mean, with respect to any Indemnitee, a revenue agent's
report or notice of proposed adjustment or a notice of deficiency issued by the
IRS to such Indemnitee with respect to the inclusion in Federal Gross Income of
a percentage of the interest on such Indemnitee's Note exceeding the Inclusion
Rate.
"Long-Term Capitalization" of the Company and its Restricted Subsidiaries
as of any date shall mean the aggregate of (a) Funded Debt of the Company and
its Restricted Subsidiaries, (b) Tangible Stockholders' Equity and (c) the
amount of the liability of the Company and its Restricted Subsidiaries in
respect of deferred income taxes, all computed and consolidated as of such date
in accordance with generally accepted accounting principles.
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"Moody's" shall mean Moody's Investors Service, Inc. and any successor
thereto which is a nationally recognized rating agency.
"Mortgage" shall mean any mortgage, pledge, security interest, lien or
other encumbrance.
"Multiemployer Plan" shall mean "multiemployer plan" (as such term is
defined in section 3(37) of ERISA and section 414(f) of the Code) to which
contributions are or have been made by the Company or any of its Subsidiaries.
"Notes" shall have the meaning specified in paragraph 1 and paragraph 8C.
"Officer's Certificate" shall mean a certificate signed in the name of the
Company by its Chief Executive Officer, Chief Operating Officer, Chief Financial
and Administrative Officer, Vice President and Controller or Vice President and
Treasurer or any other officer of the Company performing functions similar to
the functions of such officers as of the date of this Agreement.
"Opinion of Counsel" shall mean a written opinion of counsel, who may be
counsel for the Company, and who shall be acceptable to the Required Holder(s).
"Other Holder Notice" shall have the meaning specified in paragraph
8B(iii).
"Other Note Agreements" shall have the meaning specified in paragraph 2.
"Other Purchasers" shall have the meaning specified in paragraph 2.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" shall mean and include an individual, an association, a
partnership, a joint venture, a corporation, a joint-stock company, a trust, an
unincorporated organization and a government or any department or agency or
political subdivision thereof.
"Placement Memorandum" shall have the meaning specified in paragraph
10B.
"Plan" shall have the meaning specified in the introduction to this
Agreement and shall include any successor thereto.
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"Plan Documents" shall mean the Plan, the Trust Agreement and the Stock
Purchase Agreement.
"Principal Property" shall mean real or tangible property owned by the
Company or any Restricted Subsidiary constituting a part of any store, warehouse
or distribution center located within the United States (excluding current
assets, motor vehicles, mobile materials-handling equipment and other rolling
stock, cash registers and other point of sale recording devices and related
equipment and data processing and other office equipment), the net book value of
which (including leasehold improvements and store fixtures constituting a part
of such store, warehouse or distribution center) exceeds 0.50% of Long-Term
Capitalization.
"Purchase Event" shall mean (i) the occurrence of a Designated Event, and
such occurrences shall have been a significant factor leading to the Unsupported
Company Debt's having received a rating of less than Baa3 by Moody's and less
than BBB- from Standard & Poor's (or in either case, the comparable ratings then
in existence) (as modified pursuant to paragraph 8B(ii)), or (ii), if a second
credit enhancement shall have been provided in respect of the Notes pursuant to
paragraph 8B(iv) or otherwise, the Notes shall have received a rating of less
than Aal and AA+ by Moody's and Standard & Poor's, respectively (or in either
case, the comparable ratings then in existence) (as modified pursuant to
paragraph 8B(ii)).
"Purchase Notice" shall have the meaning specified in paragraph 8B.
"Purchaser" shall have the meaning specified in subparagraph (i) of
paragraph 8A.
"Qualification Date" shall mean the earliest of the following dates: (i)
the date on which the Company and the ESOT shall receive, after the exhaustion
of all legal remedies, a final determination that the Plan fails to qualify
under Section 401(a) of the Code or is not an "employee stock ownership plan"
within the meaning of section 4975(e)(7) of the Code or that the ESOT fails to
meet the requirements for tax exemption under section 501(a) of the Code; and
(ii) December 31, 1990.
"Qualified Holder" shall mean any entity described in section 133(a) of the
Code which is not a member of the same controlled group of corporations, as such
term is defined in section 133(b)(4) of the Code, as the Company.
"Qualifying Opinion of Counsel" shall mean a written opinion of recognized
tax counsel, selected by the Company and satisfactory to the Indemnitee
requesting such opinion, to the effect that interest on the Indemnitee's
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Note in an amount equal to the excess over the then current Inclusion Rate is
excludible from such Indemnitee's Federal Gross Income during the applicable
period under paragraph 7G.
"Required Holder(s)" shall mean the holder or holders of at least a
majority of the aggregate principal amount of the Notes from time to time
outstanding.
"Required Installment Payment" shall have the meaning specified in
paragraph 4A.
"Restricted Subsidiary" shall mean any Subsidiary of the Company or of a
Restricted Subsidiary substantially all the operating assets of which are
located and the principal business of which is carried on within the United
States, Puerto Rico, United States' Virgin Islands and Canada and which the
Company shall, by an Officer's Certificate delivered to the holders of the
Notes, have designated as a Restricted Subsidiary (all those now existing being
deemed to have been so designated) and the designation of which as a Restricted
Subsidiary shall not have been cancelled by an Officer's Certificate delivered
to the holders of the Notes; provided, however, that neither the designation of
a Subsidiary as a Restricted Subsidiary nor the cancellation of such designation
shall be operative if the effect of such designation or cancellation shall be to
make Long-Term Capitalization less than 200% of Senior Funded Debt of the
Company and its Restricted Subsidiaries on a pro forma basis (eliminating
intercompany items), and provided, further, that any Officer's Certificate of
the designation of a Subsidiary as a Restricted Subsidiary or the cancellation
of such designation shall set forth the Long-Term Capitalization and Senior
Funded Debt of the Company and its Restricted Subsidiaries on a pro forma basis
and show compliance with the first proviso of this paragraph. Any such
designation or cancellation of such designation may be made more than once with
respect to any Subsidiary; provided, however, that no Subsidiary which has
previously been a Restricted Subsidiary shall be redesignated a Restricted
Subsidiary if during any period following cancellation of its previous
designation as a Restricted Subsidiary such Subsidiary shall have entered into a
Sale and Lease-Back Transaction which would have been prohibited under paragraph
6E had such Subsidiary been a Restricted Subsidiary at the time of such
Transaction.
"Sale and Lease-Back Transaction" of a corporation shall mean any
arrangement whereby (a) property has been or is to be sold or transferred by
such corporation to any Person with the intention on the part of such
corporation of taking back a lease of such property pursuant to which the
rental payments are calculated to amortize the purchase price of such
property substantially over the
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useful life of such property and (b) such property is in fact so leased by such
corporation.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Funded Debt" of the Company shall mean any Funded Debt of the
Company unless in any instrument or instruments evidencing or securing such
Funded Debt or pursuant to which the same is outstanding, or in any amendment,
renewal, extension or refunding of such Funded Debt it is provided that such
Funded Debt shall be subordinate in right of payment to the Company Obligations
and the Company Notes (i) in the event of any dissolution or winding-up or total
or partial liquidation or reorganization of the Company, whether voluntary or
involuntary, or any bankruptcy, insolvency, receivership or similar proceedings
relative to the Company, (ii) in the event that any Subordinated Funded Debt of
the Company is declared due and payable before its expressed maturity because of
the occurrence of an event of default with respect to such Subordinated Funded
Debt and (iii) in the event of any default in the payment of principal
(including any required prepayments or amortization) of or interest on any
Senior Funded Debt of the Company. "Senior Funded Debt" of a Restricted
Subsidiary shall mean any Funded Debt of such Restricted Subsidiary and the
aggregate preference on involuntary liquidation of any class of stock of such
Restricted Subsidiary held by any person other than the Company or a Restricted
Subsidiary ranking, either as to payment of dividends or distribution of assets,
prior to any other class of stock of such Restricted Subsidiary.
"Significant Holder" shall mean any original holder of Notes or a holder or
holders of Notes aggregating not less than 5% in aggregate unpaid principal
amount of the Notes at the time outstanding, and at the time of and during the
continuance of a Default or ESOT Event or Purchase Event shall mean the holder
of any Notes.
"Significant Subsidiary or Significant Group of Subsidiaries" means any
Restricted Subsidiary or group of Restricted Subsidiaries which, individually or
in the aggregate, together with its or their consolidated Subsidiaries, accounts
or account for more than 20% of the consolidated gross revenues or net income of
the Company and its Subsidiaries for the fiscal year most recently ended or for
more than 20% of the total assets or Tangible Stockholders' Equity of the
Company and its Subsidiaries as of the end of such fiscal year.
"Standard & Poor's" shall mean Standard & Poor's Corporation and any
successor thereto that is a nationally recognized rating agency.
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"Stock Purchase Agreement" shall mean the Preference Stock Purchase
Agreement between the Company and the ESOT, in the form delivered as
contemplated by paragraph 3D.
"Subsidiary" shall mean a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
which ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"Subordinated Funded Debt" of the Company shall mean Funded Debt of the
Company which is not Senior Funded Debt.
"Supplemental Payment Period" as to any Indemnitee shall mean, with respect
to any Change of Law, the period from the earliest date as of which such Change
of Law is effective with respect to such Indemnitee until the earlier of (i) the
payment in full of such Indemnitee's Note, together with all accrued interest
and premium, if any, thereon and (ii) the last date as of which such Change of
Law remains effective.
"Tangible Stockholders' Equity" as of any date shall mean the aggregate of
(i) capital (including all preferred stock, common stock and capital surplus)
and (ii) retained earnings, after deducting intangibles (other than goodwill,
net of accumulated amortization, existing as of December 31, 1988), any
contra-equity account, and the cost of shares of capital stock held in treasury,
all as would be shown on a consolidated balance sheet of the Company and its
subsidiaries as of such date prepared in accordance with generally accepted
accounting principles.
"Tax Allowance" shall mean any deduction, credit, exclusion or other
allowance allowable in computing liability for any Federal tax.
"Transferee" shall mean any direct or indirect transferee of all or any
part of any Note purchased by you under the Agreement.
"Trust Agreement" shall mean the Trust Agreement, effective as of June 7,
1989, by and between the Company and the Trustee, as from time to time in
effect, pursuant to which the ESOT was created.
"Trust Company" shall mean The Bank of New York, as trustee of the ESOT,
and its successors as such trustee.
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"Unsupported Company Debt" shall mean the long-term senior unsecured
indebtedness of the Company, the creditworthiness of which is not supported
through defeasance, guarantees, credit enhancement or otherwise.
12C. ACCOUNTING TERMS AND DETERMINATIONS. References in this agreement to
"generally accepted accounting principles" shall mean generally accepted
accounting principles in effect in the United States of America as of the date
of determination thereof.
13. JUDICIAL PROCEEDINGS.
13A. CONSENT TO JURISDICTION. Each of the Company and the ESOT irrevocably
submits to the non-exclusive jurisdiction of any New York State or Federal court
sitting in the City of New York, Borough of Manhattan, over any suit, action or
proceeding arising out of or relating to this Agreement or the Notes. To the
fullest extent it may effectively do so under applicable law, each of the
Company and the ESOT irrevocably waives and agrees not to assert, by way of
motion as a defense or otherwise, any claim that it is not subject to the
subject-matter jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
13B. ENFORCEMENT OF JUDGMENTS. Each of the Company and the ESOT agrees, to
the fullest extent it may effectively do so under applicable law, that a
judgment in any suit, action or proceeding of the nature referred to in
paragraph 13A brought in any such court shall be conclusive and binding upon the
Company or the ESOT, as the case may be, and may be enforced in the courts of
the United States of America or the State of New York (or any other courts to
the jurisdiction of which the Company or the ESOT, as the case may be, is or may
be subject) by a suit upon such judgment.
13C. SERVICE OF PROCESS. Each of the Company and the ESOT consents to
process being served in any suit, action or proceeding of the nature referred to
in paragraph 13A by mailing a copy thereof by registered or certified mail,
postage prepaid, return receipt requested, to the address of the Company or the
ESOT, as the case may be, specified in or designated pursuant to paragraph 14I.
The Company and the ESOT agree that such service (i) shall be deemed in every
respect effective service of process upon the Company or the ESOT, as the case
may be, in any such suit, action or proceeding and (ii) shall, to the fullest
extent permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company or the ESOT, as the case may be.
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13D. NO LIMITATION ON SERVICE OR SUIT. Nothing in this paragraph 13 shall
affect the right of you or any holder of a Note to serve process in any manner
permitted by law, or limit any right that the holders of any Notes may have to
bring proceedings against the Company or the ESOT in the courts of any
jurisdiction or to enforce in any lawful manner a judgment obtained in one
jurisdiction in any other jurisdiction.
14. MISCELLANEOUS.
14A. NOTE PAYMENTS. So long as you shall hold any Note, payments of
principal of the Notes and interest and premium on the Notes, which comply with
the terms of this Agreement shall be made by wire transfer of immediately
available funds for credit to your account or accounts, as specified in the
Purchaser Schedule attached hereto, or to such other account or accounts in the
United States as you may designate in writing, notwithstanding any contrary
provision herein or in any Note with respect to the place of payment. You agree
that, before disposing of any Note, you will make a notation thereon (or on a
schedule attached thereto) of all principal payments previously made thereon and
of the date to which interest thereon has been paid. Each of the Company and the
ESOT agrees to afford the benefits of this paragraph 14A to any Transferee which
shall have made the same agreements as you have made in this paragraph 14A.
14B. EXPENSES. The Company agrees, whether or not the transactions hereby
contemplated shall be consummated, to pay, and save you and any Transferee
harmless against liability for the payment of, all out-of-pocket expenses
arising in connection with this Agreement, the Notes, the Plan Documents and the
transactions hereby and thereby contemplated, including, without limitation, (i)
all such expenses incurred with respect to the enforcement of any provision of
any such agreement or instrument or with respect to complying with any subpoena
or other legal process or informal investigative order or other request by a
governmental body for information served upon you or any Transferee or any of
your or any Transferee's employees or agents in connection with this Agreement
or the transactions contemplated hereby or by reason of your or any Transferee's
having acquired any Note, any proposed modifications, consents, amendments or
waivers (whether or not the same become effective) under or in respect of any
such agreement or instrument, and all expenses incurred in connection with the
preparation of such agreements and instruments, (ii) all stamp, documentary or
other similar issuance or transaction taxes (together in each case with interest
and penalties, if any, and any income tax payable by you or any Transferee in
respect of any reimbursement therefor) which may be payable in respect of the
execution and delivery of such agreements or instruments, or the issuance,
delivery or purchase by you of any Note, including, without limitation, any
excise taxes imposed under the Code by reason of the
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failure of the ESOT Transaction to satisfy the requirements of section 4975 of
the Code for exemption from the provisions thereof, and (iii) all document
production and duplication charges and the fees and expenses of your or any
Transferee's special counsel and all local counsel retained in connection with
such agreements and instruments, and the transactions hereby and thereby
contemplated, including the enforcement of any provision hereof or thereof, and
any such proposed modifications, consents, amendments or waivers (whether or not
the same become effective), including without limitation costs and expenses
incurred in any bankruptcy case. The Company further agrees to indemnify and
save harmless you and any Transferee and each of your and any Transferee's
officers, directors, employees and agents (each herein called an "indemnified
person") from and against any and all actions, causes of action, suits, losses,
liabilities and damages, and expenses (including, without limitation, attorneys'
fees and disbursements provided, in any related series of actions involving
different Persons but with common interests and with no conflicting interests,
only one counsel's fees and disbursements shall be so reimbursed) in connection
therewith (herein called the "indemnified liabilities") incurred by any
indemnified person as a result of, or arising out of, or relating to any of the
transactions contemplated hereby, except for any indemnified liabilities arising
on account of the gross negligence or willful misconduct of such indemnified
person provided that, if and to the extent the Company's agreement to indemnify
may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the indemnified
liabilities which shall be permissible under applicable law. If the Closing does
not occur, the Company's obligations to you shall be limited to those set forth
in this Section 14B.
14C. CONSENT TO AMENDMENTS. (i) This Agreement may be amended with the
consent of both the Company and the ESOT, and with such consent the Company or
the ESOT, as the case may be, may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, but in any of the
foregoing cases only if there shall have been obtained the written consent to
such amendment, action or omission to act, of the Required Holder(s), except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note or the right of any holder of a Note to accelerate such Note pursuant
to paragraph 9A, or change the principal of, or the rate or time of payment of
interest or any premium payable with respect to any Note, or change any of the
provisions of paragraph 7 or 8, or affect the time, amount or allocation of any
Required Installment Payments, or change any of the provisions of paragraph 4B
or 4D or reduce the proportion of the principal amount of the Notes required
with respect to any consent. Each holder of a Note at the time or thereafter
outstanding shall be bound by any consent authorized by this paragraph 14C,
whether or not such Note shall have been marked to indicate such consent,
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but any Notes issued thereafter may bear a notation referring to any such
consent. No course of dealing between the ESOT or the Company and any holder of
a Note nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of such holder of a Note. As used herein and
in the Notes, the term "this Agreement" or references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
(ii) Neither the ESOT nor the Company will solicit, request or negotiate
for or with respect to any proposed waiver or amendment of any of the provisions
of this Agreement or the Notes unless each holder of Notes (irrespective of the
amount of Notes then held by it) shall be informed thereof by the ESOT or the
Company, as the case may be, and shall be afforded an opportunity of considering
the same and shall be supplied by the ESOT or the Company, as the case may be,
with sufficient information to enable it to make an informed decision with
respect thereto. Executed or true and correct copies of any waiver or consent
effected pursuant to the provisions of this Agreement shall be delivered by the
ESOT or the Company, as the case may be, to each holder of Notes forthwith
following the date on which the same shall have been executed and delivered by
the holder or holders of the requisite percentage of outstanding Notes. Neither
the ESOT nor the Company will, directly or indirectly, pay or cause to be paid
any remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any holder of Notes as consideration for or as an inducement to
the entering into by such holder of Notes of any waiver or amendment of any of
the terms and provisions of this Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to all such holders of Notes.
14D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST NOTES. The
Notes are issuable as registered Notes without coupons in denominations of at
least $500,000, except as may be necessary to reflect any principal amount not
evenly divisible by $500,000. The ESOT shall keep or cause to be kept at its
principal office or at the offices of its designated agent (the "ESOT Agent"),
which shall initially be the Trustee or such other ESOT Agent as the ESOT shall
from time to time designate and so notify the holders of the Notes, a register
in which it shall provide for the registration of Notes and of transfers of
Notes. Any registered holder of a Note shall be entitled, upon its written
request, to receive from the ESOT Agent a list of the registered holders of the
Notes and the respective principal amounts of Notes held by such holders. Upon
surrender for registration of transfer of any Note at the principal office of
the ESOT Agent it shall, at its expense, execute and deliver one or more new
Notes of like tenor and of a like aggregate principal amount, which Notes shall
be registered in the name of such transferee or transferees. At the option of
the holder of any Note, such Note may be exchanged for Notes of like tenor and
of any authorized denominations, of a like aggregate principal amount, upon
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surrender of the Note to be exchanged at the principal office of the ESOT Agent.
Whenever any Notes are so surrendered for exchange, the ESOT shall, at its
expense, execute and deliver the Notes which the holder making the exchange is
entitled to receive. Every Note surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of such Note or such holder's attorney
duly authorized in writing. Any Note or Notes issued in exchange for any Note or
upon transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange and shall be accompanied by the amortization schedule required by
paragraph 4A. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any such
loss, theft or destruction, upon receipt of such holder's unsecured indemnity
agreement, or in the case of any such mutilation upon surrender and cancellation
of such Note, the ESOT will make and deliver a new Note, of like tenor, in lieu
of the lost, stolen, destroyed or mutilated Note, which shall be accompanied by
the amortization schedule required by paragraph 4A. In the case of Company
Notes, references in this paragraph to "ESOT" shall be deemed to be references
to the "Company".
14E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due presentment for
registration of transfer, the ESOT (or the Company, in the case of Company
Notes) may treat the Person in whose name any Note is registered as the owner
and holder of such Note for the purpose of receiving payment of principal of and
premium, if any, and interest on, such Note and for all other purposes
whatsoever, whether or not such Note shall be overdue, and the ESOT shall not be
affected by notice to the contrary. Subject to the preceding sentence, the
holder of any Note may from time to time grant participations in all or any part
of such Note to any Person on such terms and conditions as may be determined by
such holder in its sole and absolute discretion.
14F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All
representations and warranties contained herein or made in writing by or on
behalf of the parties hereto in connection herewith shall survive the execution
and delivery of this Agreement and the Notes, the transfer by you of any Note or
portion thereof or interest therein and the payment of any Note, and may be
relied upon by any Transferee, regardless of any investigation made at any time
by or on behalf of you or any Transferee. Subject to the preceding sentence,
this Agreement and the Notes embody the entire agreement and understanding
between you, the ESOT and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof. The obligations of the
Company and/or the ESOT under paragraph 7, paragraph 8 and paragraph 14B shall
survive the transfer, purchase or payment of any Note (in
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whole or in part) and the rights of each Person arising under said paragraphs
may not be changed without the consent of such Person.
14G. SUCCESSORS AND ASSIGNS. All covenants and other agreements in this
Agreement made by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
(including, without limitation, any Transferee) whether so expressed or not.
14H. DISCLOSURE TO OTHER PERSONS. Each of the Company and the ESOT
acknowledges that the holder of any Note may deliver copies of any financial
statements and other documents delivered to such holder, and disclose any other
information disclosed to such holder, by or on behalf of the ESOT, the Company
or any Subsidiary in connection with or pursuant to this Agreement to (i) such
holder's directors, officers, employees, agents and professional consultants,
(ii) any other holder of any Note, (iii) any Person to which such holder offers
to sell such Note or any part thereof, (iv) any Person to which such holder
sells or offers to sell a participation in all or any part of such Note, (v) any
Federal or state regulatory authority having jurisdiction over such holder, (vi)
the National Association of Insurance Commissioners or any similar organization
or (vii) any other Person to which such delivery or disclosure may be necessary
or appropriate (a) in compliance with any law, rule, regulation or order
applicable to such holder, (b) in response to any subpoena or other legal
process or informal investigative order, (c) in connection with any litigation
to which such holder is a party or (d) in order to protect such holder's
investment in such Note.
14I. NOTICES. All communications provided for hereunder shall be sent by
first class mail or nationwide overnight delivery service (with charges prepaid)
and (i) if to you, addressed to you at the address specified for such
communications in the Purchaser Schedule hereto attached, or at such other
address as you may have designated to the other parties hereto in writing, (ii)
if to any other holder of any Notes, addressed to such holder at the registered
address of such holder as set forth in the register kept by the ESOT at its
principal office as provided in paragraph 14D, or at such other address as such
holder may have designated to the other parties hereto in writing, (iii) if to
the Company, addressed to it at 3000 Westchester Avenue, Harrison, New York
10528, Attention: Vice President and Treasurer, and (iv) if to the ESOT
addressed to it at the address set forth in the heading of this Agreement,
Attention: DIVISION HEAD, INSTITUTIONAL TRUST DIVISION or to such other address
or addresses as the Company or the ESOT may have designated in writing to you
and each other holder of any of the Notes at the time outstanding; provided,
however, that any such communication to the Company may also, at your option, be
either delivered
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to the Company at its address set forth above or to any principal executive or
financial officer of the Company.
14J. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
14K. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be reasonably satisfactory to you or the Required Holder(s), the
determination of such reasonable satisfaction shall be made by you or the
Required Holder(s), as the case may be, in the sole and exclusive judgment
(exercised in good faith) of the Person or Persons making such determination.
14L. GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY,
THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICT OF LAW THEREOF.
14M. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, and it shall not
be necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
14N. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
hereto, including, without limitation (i) consents, waivers and modifications
which may hereafter be executed, (ii) documents received by any party at the
closing (except the Notes themselves), and (iii) financial statements,
certificates and other information previously or hereafter furnished to any
party may be reproduced by such party by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar process and such
party may destroy any original documents so reproduced. The parties hereto agree
and stipulate that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
14O. TRUSTEE LIABILITY. You acknowledge that the Trustee is executing this
Agreement and the Notes solely in its capacity as trustee under the Trust
Agreement and at the written direction of the Company. Notwithstanding anything
contained elsewhere in this Agreement and the Notes, the Trustee shall
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have no liability or obligation of any kind to you or your assigns or
successors, or any other Person claiming by or through you, as a result of the
execution of this Agreement or the Notes or in connection with any actions taken
or not taken in connection herewith or therewith, including without limitation
the carrying out of or the failure to carry out any of the covenants made herein
or therein, except for damages suffered by you as a result of acts or omissions
on the part of the Trustee constituting gross negligence or wilful misconduct.
If you are in agreement with the foregoing, please sign the form of acceptance
on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding agreement between you
and the undersigned.
Very truly yours,
THE MELVILLE CORPORATION AND
SUBSIDIARIES EMPLOYEE STOCK
OWNERSHIP PLAN TRUST
By THE BANK OF NEW YORK,
as Trustee
By: _____________________
Title:
MELVILLE CORPORATION
By: _____________________
Title:
65
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EXHIBIT A-1
[FORM OF NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION ONLY PURSUANT TO AN EXEMPTION THEREFROM.
THE MELVILLE CORPORATION
SUBSIDIARIES EMPLOYEE
STOCK OWNERSHIP PLAN TRUST OF
THE MELVILLE CORPORATION AND
SUBSIDIARIES EMPLOYEE STOCK
OWNERSHIP PLAN
8.60% ESOP NOTE DUE DECEMBER 31, 2008
No. _______ [DATE]
$__________
FOR VALUE RECEIVED, the undersigned trust established by the Melville
Corporation and Subsidiaries Employee Stock Ownership Plan Trust Agreement (the
"ESOT") of the Melville Corporation and Subsidiaries Employee Stock Ownership
Plan (the "Plan"), hereby promises to pay to or registered
assigns, the principal sum of DOLLARS with interest (computed on
the basis of a 360-day year of twelve 30-day months) from the date hereof (a) on
the unpaid balance thereof at the rate of 8.60% per annum (subject to
adjustment, as provided in the Note Agreements hereinafter referred to) until
the principal hereof shall have become due and payable, and (b) on each overdue
payment (including any overdue prepayment) of principal and premium, if any,
and, to the extent permitted by applicable law, each overdue payment of interest
(payable, at the option of the registered holder hereof, on demand), at a rate
per annum from time to time equal to the greater of (i) the rate of interest on
this Note in effect at the time such payment was due, plus 2% per annum, or (ii)
the rate of interest publicly announced by Morgan Guaranty Trust Company of New
York from time to time in New York City as its Prime Rate, until such overdue
amount shall have been paid in full. Accrued interest is payable in arrears,
commencing on December 31, 1989, and thereafter on October 31, 1990, October 31,
1991, October 31, 1992, and on December 31, 1993 and each December 31 thereafter
up to and including December 31, 2008. The principal of this Note is payable in
installment payments as set forth on the Amortization Schedule annexed hereto.
<PAGE>
1. Place of Payment. Payments of both principal and interest are to be made
at the office of Morgan Guaranty Trust Company of New York, or such other place
as the holder hereof shall designate to the ESOT in writing, in lawful money of
the United States of America.
2. ESOP. This note is one of a number of 8.60% ESOP Notes Due December 31,
2008 (herein called the "Notes") in an original agaregate principal amount of
$357,500,000 issued by the ESOT pursuant to certain Note Purchase Agreements
(the "Note Agreements"), dated as of June 7, 1989, among the ESOT, Melville
Corporation (the "Company") and the purchasers named therein, and is entitled to
the benefits thereof.
3. Registered Notes. The Notes are issuable only as registered Notes. As
provided in the Note Agreements, upon surrender of this Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder hereof or such holder's attorney duly
authorized in writing, a new Note for a like principal amount will be issued to,
and registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the ESOT may treat the person in whose name this Note
is registered as the owner hereof for the purpose of receiving payment and for
all other purposes, and the Trustee shall not be affected by any notice to the
contrary.
4. Defaults. In case an Event of Default, as defined in the Agreements,
shall occur and be continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner and with the effect provided in
the Note Agreements.
5. No Recourse. The holder of this Note shall not have any recourse against
the ESOT or its trustees, except to the extent of the assets of the ESOT that
are permitted under Treasury Regulation section 54.4975-7(b)(5) and
54.4975-7(b)(6) and any successor thereto, to be used to repay the Notes.
6. Guarantee. Payments under this Note are guaranteed by the Company
pursuant to the Note Agreements.
THE MELVILLE CORPORATION AND
SUBSIDIARIES EMPLOYEE STOCK
OWNERSHIP PLAN TRUST OF THE
MELVILLE CORPORATION AND
SUBSIDIARIES EMPLOYEE STOCK
OWNERSHIP PLAN
2
<PAGE>
By: _______________________________
Trustee
[By: ______________________________
Trustee]
3
<PAGE>
AMORTIZATION SCHEDULE
8.60% ESOP NOTES
Percent of original
Date principal amount
-------------------
<PAGE>
EXHIBIT A-3
AMORTIZATION OF PRINCIPAL
Payment
Date Principal Amount
-------- ----------------
$
<PAGE>
EXHIBIT B-2
[FORM OF OPINION OF COMPANY COUNSEL]
[Date of Closing]
To each of the Purchasers named in
Schedule I hereto
Ladies and Gentlemen:
As General Attorney of Melville Corporation (the "Company"), I am
familiar with the several Note Purchase Agreements, each dated as of June 7,
1989, among the trust established by the Melville Corporation and
Subsidiaries Employee Stock Ownership Plan Trust Agreement (the "ESOT") of
the Melville Corporation and Subsidiaries Employee Stock Ownership Plan (the
"Plan"), as issuer, the Company, as guarantor, and, respectively, each of you
(the "Note Agreements"), pursuant to which the ESOT has today issued its
Notes in the aggregate principal amount of $357,500,000. Capitalized terms
used herein without definition are used as defined in the Note Agreements.
In rendering the opinions set forth below, I have examined the originals
or photostatic or certified copies of certain of the corporate records and
documents of the Company, copies of public documents, certificates of
officers or reptesentatives of the Company and such other instruments and
documents, and have made such inquiries as I have deemed relevant and
necessary as a basis for such opinions. I have assumed the authenticity of
all documents submitted to me as originals and the conformity to original
documents of all documents submitted to me as certified or photostatic
copies. As to questions of fact material to the opinions hereinafter
expressed, I have relied upon the representations and warranties of the
Company made in the Note Agreements and the Plan Documents and upon certain
certificates of and representations from other empicyees of the Company
(which reliance I believe to be reasonable based upon my general knowledge of
the Company and its affairs).
Based upon the foregoing, I am of the opinion that:
1. The Company and each of its Subsidiaries are qualified to do
business in every jurisdiction in which the nature of the business conducted
by the Company or such Subsidiary, as the case may be, makes such
qualification
<PAGE>
necessary and where the failure so to qualify would have a material adverse
effect on the business, financial condition or operations of the Company and
its Subsidiaries taken as a whole.
2. The execution and delivery of the Plan Documents and the Note
Agreements, the guarantee of the Notes, the authorization of the Company
Notes, the consummation of the ESOT Transaction and the fulfillment of and
compliance with the respective provisions of the Note Agreements, the Notes
and the Plan Documents do not conflict with, or result in a breach of the
terms, conditions or provisions of, or constitute a default under, or result
in any violation of, or result in the creation of any Mortgage upon, any of
the material properties or assets of the Company or any Subsidiary pursuant
to, or require any authorization, consent, approval, exemption or other
action by or notice to or filing with any court, administrative or
governmental body or other Person (other than routine filings not relating to
the validity of any of the foregoing) pursuant to, the charter or By-Laws of
the Company or any Subsidiary, any law, regulation, award of any arbitrator
or any agreement, instrument, order, judgment or decree to which the Company
or a Subsidiary is a party or by which the Company or a Subsidiary or any of
their respective properties is subject.
3. There are no actions, suits or proceedings at law or in equity or by
or before any governmental instrumentality or other agency or regulatory
authority now pending or, to the best of my knowledge, threatened against or
affecting the Company or any of its Subsidiaries or the ESOT or any of their
respective property or assets, which questions the legality or validity of,
or seeks damages in connection with, the Note Agreements, the Plan Documents,
the ESOT Transaction or any action taken or to be taken pursuant to the Note
Agreements or the Plan Documents, or which, if determined adversely to the
Company or any of its Subsidiaries, would individually or in the aggregate
have a material adverse effect on the consolidated financial position,
shareholders' equity or results of operation of the Company and its
Subsidiaries taken as a whole. Neither the Company nor any of its
Subsidiaries is in violation of any order, injunction or decree of any
governmental instrumentality or regulatory authority, where such violation
would have a material adverse effect on the business, condition, operations
or prospects (financial or other) of the Company and its Subsidiaries, taken
as a whole.
Very truly yours,
2
<PAGE>
EXHIBIT B-3
[FORM OF OPINION OF COUNSEL TO THE ESOT]
[Date of Closing]
To Each of the Purchasers
Party to the Note Agreements
Referred to Below
The Melville Corporation and Subsidiaries Employee Stock
Ownership Plan Trust 8.60% Guaranteed ESOP Notes due
Dear Purchaser:
We have acted as counsel to The Bank of New York ("BNY") in connection
with the Melville Corporation and Subsidiaries Employee Stock Ownership Plan
Trust Agreement, dated June 7, 1989 (the "Trust Agreement") establishing the
trust (the "Trust") which forms part of the Melville Corporation and
Subsidiaries Employee Stock Ownership Plan (the "Plan"). In addition, we have
acted as counsel to BNY, not in its individual capacity but solely in its
capacity as trustee under the Trust Agreement (the "Trustee"), in connection
with (a) the separate identical Note Purchase Agreements (the "Note
Agreements"), dated as of June 7, 1989, between the Trust (also known as the
"ESOT" for purposes of the Note Agreements) and you and each of the other
institutional ivestors named in the Purchaser Schedule thereto (the "Other
Purchasers"), respectively, pursuant to which the ESOT has issued to you and
the Other Purchasers today $357,500,000 aggregate principal amount of its
8.60% Guaranteed ESOP Notes due January 2, 2009 (the "Notes"); and (b) the
Preference Stock Purchase Agreement, dated as of June 7, 1989, between the
ESOT and Melville Corporation (the "Stock Purchase Agreement"). Capitalized
terms used in this letter that are not otherwise defined shall have the
meanings assigned to them in the Note Agreements.
For purposes of rendering the opinions contained in this letter, we have
examined and reviewed the following:
(i) the Trust Agreement;
(ii) the ESOP plan document;
(iii) the form of Note Agreement;
<PAGE>
(iv) the form of Note;
(v) the Stock Purchase Agreement;
(vi) the Trustee's Certificate dated June , 1989;
(vii) the Certificate of Incumbency, dated June , 1989, of BNY;
(viii) the Registration Rights Agreement;
(ix) the opinion to you dated as of the date hereof of Davis Polk &
Wardwell;
(x) the Letter to the ESOT of Duff & Phelps Financial Consulting
Co., dated June , 1989;
(xi) [(other documents?]
In addition, we have examined applicable provisions of the Internal
Revenue Code of 1986 (the "Code"), and of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), regulations issued thereunder by
the Departments of Labor and the Treasury and such other authorities as we
have deemed relevant.
In rendering the opinions set forth herein, we have assumed that (i) all
signatures on the documents listed above are genuine, (ii) all copies
submitted to us as certified, conformed or photostatic copies conform to the
original documents, and (iii) all statements, representations and warranties
and recitals of fact set forth in such documents are true and all covenants
and other terms set forth therein will be observed by all parties in all
respects. Accordingly, with your consent, we have relied upon such
statements, representation and warranties and recitals of fact without
further investigation or independent verification.
In rendering the opinions set forth in paragraphs 5 and 6 below, we have
relied with your consent upon the opinions expressed in numbered paragraph 5
of the opinion letter of Davis Polk & Wardwell referred to above. We express
no opinions as to the matters covered in such opinion except to the extent
expressly provided herein. For purposes of rendering the opinions set forth
in paragraph 6 below, we have also, with your consent, relied upon a
certificate of the Trustee attached hereto, and we understand that in giving
such certificate the Trustee has relied upon the opinion of Duff & Phelps
Financial Consulting Co. as to matters of fairness and value.
2
<PAGE>
The opinions set forth in paragraph 6 below are based on the provisions
of the Code and ERISA as in effect on the date hereof. We express no opinion
concerning the effect of pending legislation, proposed, temporary or final
rules or regulations, or other authoritative guidance which is hereafter
enacted, adopted or issued. New developments in administrative regulations,
court decisions, legislative changes, rulings of any agency, or changes in
the facts or other information upon which our opinions are based may have an
adverse effect on the legal consequences described herein. Such developments
have recently become commonplace in the field of employee benefits. Any such
change could be retroactive so as to apply to any party to any of the
documents listed above or any of the transactions contemplated thereby.
Although our opinions represent our best legal judgment, they may be subject
to challenge by any governmental agency and are not binding on any
governmental agency or the courts.
We are members of the Bar of the State of New York and do not purport to
be experts on, or to express any opinions concerning, any laws other than (i)
the laws of the State of New York and (ii) the federal laws of the United
States of America.
Based upon the foregoing, and subject to the limitations and
qualifications set forth herein and having regard to the legal considerations
we deem relevant, we are of the opinion that:
1. BNY is a New York banking association duly organized, validly
existing and in good standing under the laws of New York. BNY has all
requisite power and authority to execute, deliver and perform all of its
obligations under the Trust Agreement.
2. The Note Agreements, the Notes, the Trust Agreement and the Stock
Purchase Agreement (a) have been duly authorized, executed and delivered by
BNY or the Trustee, as the case may be, and (b) constitute legal, valid and
binding agreements of BNY or the ESOT, as the case may be, enforceable in
accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject to general principles of
equity, including principles of commercial reasonableness, good faith and
fair dealing (regardless of whether enforcement is sought in a proceeding at
law or in equity).
3. The execution, delivery and performance of the Trust Agreement by
BNY, and the execution, delivery and performance of the Note Agreements, the
Notes and the Stock Purchase Agreement by the Trustee, will not violate the
charter or the By-Laws of BNY, any order, writ, judgment, injunction, decree,
determination or award presently in effect of which we have knowledge and
3
<PAGE>
which is binding on the Trustee or the ESOT, or any provision of any
indenture, agreement or other instrument to which the ESOT or the Trustee is
a party, or by which the ESOT or the Trustee or any of their respective
properties or assets are or may be bound.
4. The Plan and the ESOT are, and, from the date of their adoption or
latest amendment and restatement, respectively, have been, in form, qualified
and tax-exempt under section 401(a) and 501(a) of the Code. The ESOT is, and,
from its date of adoption, has been, in form, an employee stock ownership
plan within the definition of section 4975(e)(7) of the Code and section
407(d)(6) of ERISA.
5. The acquisition by the ESOT of the Employer Capital Stock pursuant to
the terms of the Stock Purchase Agreement qualify for the prohibited
transaction exemption provided by Section 408(e) of ERISA and Section
4975(d)(13) of the Code. The consummation of the transactions specifically
provided for in the Note Agreements, the compliance by the ESOT with the
terms of the Note Agreements and the Notes, and the receipt of the proceeds
of the Notes by the ESOT qualify for the prohibited transactions exemption
provided by Section 408(b)(3) of ERISA, Section 4975(d)(3) of the Code and
Treasury Regulation Section 54.4975-7.
6. To the best of our knowledge, there are no actions, suits or
proceedings at law or in equity or by or before any governmental
instrumentality or other agency or regulatory authority now pending against
the ESOT, which involve the ESOT Transaction, or which might individually or
in the aggregate materially impair the ability of the ESOT to conduct its
affairs substantially as now conducted or as proposed to be conducted, or
materially and adversely affect the activities or financial condition of the
ESOT, or impair in any material respect the validity or enforceability of, or
the ability of the Trustee or the ESOT to perform their respective
obligations under, the Plan Documents.
The foregoing opinions are based on and subject to the following
assumptions and understandings:
(a) We render no opinion regarding Section 406(b)(3) of ERISA or Section
4975(c)(1)(F) of the Code.
(b) In connection with the opinion set forth in paragraph 5 above, we
understand that the Plan will be communicated to employees of the Company on
or shortly after the date of its adoption and that further employee
communications are scheduled to commence shortly after the Closing. We have
assumed that the Plan and the ESOT will be submitted by us, within the time
limits described under section 401(b) and the regulations thereunder, to the
appropriate District Director
4
<PAGE>
of Internal Revenue together with an application requesting a determination
that the Plan satisfies and that the ESOT continues to satisfy the
requirements for qualifications and exemption from federal income taxation
under sections 401(a) and 501(a) of the Code, respectively, and that the Plan
satisfies the requirements for qualification as an "employee stock ownership
plan" under section 4975(d)(7) of the Code. In instances where the Code has
been amended to impose qualification requirements that are inconsistent with
administrative regulations adopted prior to such amendment, we have drafted
the Plan and the ESOT to comply with the requirements of the Code. Although
the District Director may require certain technical changes to be adopted
before issuing a favorable determination letter, we note that paragraph 5F of
the Note Agreements includes broad affirmative covenants on the part of the
Company to apply for and obtain a favorable determination letter, and to make
whatever amendments are required to assure that the Plan and the ESOT meet
the requirements for qualification and exemption from taxation under sections
401(a), 501(a) and 4975(e)(7) of the Code. We have assumed that whatever
amendments are required to assure that the Plan and the ESOT meet the
requirements for qualification and exemption from taxation under sections
401(a), 501(a) and 4975(e)(7) of the Code and to exempt the loan to the ESOT
evidenced by the sale of the Notes from the prohibited transaction provisions
of sections 4975(c) of the Code and 406 of ERISA by reason of sections
4975(d)(3) and 408(b)(3) of ERISA will in fact be adopted. We specifically
note that we do not express an opinion as to the effect on the qualification
of the Plan of its operation subsequent to the date of the Closing.
(c) Our opinions in paragraph 6 are conditioned on and subject to a
determination by the appropriate Plan fiduciary that, in accordance with
Section 4975(d)(3) of the Code and Section 408(b)(3) of ERISA, (i) the Note
Agreements and the Notes are primarily for the benefit of participants and
beneficiaries of the Plan and (ii) the Notes bear a reasonable rate of
interest. In particular, Treasury Regulation Sections 54.4975-7(b)(2), (3)
and (7) describe the factual determinations that must be made by the Plan's
fiduciaries in order to conclude that the Note Agreements and the Notes are
primarily for the benefit of participants and beneficiaries and bear a
reasonable rate of interest. We express no opinion regarding these factual
determinations.
(d) Our opinions in paragraph 6 are conditioned on and subject to the
determination by the appropriate Plan fiduciary that, in accordance with
Section 4975(d)(13) of the Code and Section 408(b) of ERISA, the ESOT's
acquisition of Employer Capital Stock pursuant to the Stock Purchase
Agreement will be for "adequate consideration" (as defined in Section 3(18)
of ERISA). Because there is no generally recognized market for the
[ESOP Preference Shares], "adequate consideration" for this purpose will be
the fair market value of the [ESOP Preference Shares] as determined in good
faith by the Trustee. We note in this
5
<PAGE>
regard that the Trustee has conducted such investigations and performed such
analyses as it deemed appropriate and has concluded, according to the
attached certificate, that the consideration to be paid by the [ESOT] for the
[ESOP Preference Shares] pursuant to the Stock Purchase Agreement does not
exceed the fair market value of such [ESOP Preference Shares].
This opinion letter is furnished by us solely for the benefit of the
addressees hereof. This opinion may not be relied upon by any other person,
firm or corporation for any purpose without our prior written consent.
Very truly yours,
6
<PAGE>
EXHIBIT C
[FORM OF COMPANY NOTE]
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION ONLY PURSUANT TO AN EXEMPTION THEREFROM.
MELVILLE CORPORATION
PROMISSORY NOTE
No. ________ [DATE]
$__________
FOR VALUE RECEIVED, the undersigned, MELVILLE CORPORATION (herein called
the "Company"), a corporation organized and existing under the laws of the State
New York, hereby promises to pay to , or registered assigns, the
principal sum of DOLLARS with interest (computed on the basis of
a 360-day year of twelve 30-day months) from the date hereof (a) on the unpaid
balance thereof at the rate of 10.75% per annum until the principal hereof shall
have become due and payable, and (b) on each overdue payment (including any
overdue prepayment) of principal and premium, if any, and, to the extent
permitted by applicable law, each overdue payment of interest (payable, at the
option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (i) the aforesaid annual rate of interest,
plus 2% per annum or (ii) the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York from time to time in New York City as its
Prime Rate, until such overdue amount shall have been paid in full. Accrued
interest is payable in arrears, on each of the following dates occurring after
the date of issuance hereof and if not so issued, commencing December 31, of the
year following such issuance, and thereafter on each December 31, up to and
including December 31, 2008. The principal of this Note is payable in
installment payments as set forth on the Amortization Schedule annexed hereto.
1. Place of Payment. Payments of both principal and interest are to be made
at the office of Morgan Guaranty Trust Company of New York, or such other place
as the holder hereof shall designate to the Company in writing, in lawful money
of the United States of America.
<PAGE>
2. Company Notes. This note is one of a number of Promissory Notes (herein
called the "Company Notes") issued by the Company pursuant to certain Note
Purchase Agreements (the "Note Agreements"), dated as of June 7, 1989, among the
Melville Corporation and Subsidiaries Employee Stock Ownership Trust of The
Melville Corporation and Subsidiaries Employee Stock Ownership Plan, the Company
and the purchasers named therein, and is entitled to the benefits thereof.
3. Registered Notes. The Company Notes are issuable only as registered
notes. As provided in the Note Agreements, upon surrender of this Company Note
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Company Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Company Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
4. Defaults. In case an Event of Default, as defined in the Note
Agreements, shall occur and be continuing, the principal of this Company Note
may be declared or otherwise become due and payable in the manner and with the
effect provided in the Note Agreements.
MELVILLE CORPORATION
By __________________________
Title:
2
<PAGE>
AMORTIZATION SCHEDULE
8.60% COMPANY NOTES
<TABLE>
<CAPTION>
Percent of Original
Payment Date Principal Amount
- ------------ -------------------
<S> <C>
</TABLE>
<PAGE>
MELVILLE CORPORATION
8.60% ESOP Notes Due 2008
Mandatory Redemption Schedule
- -----------------------------
(The following schedule assumes a closing as of June 1, 1989; an earlier closing
may result in insignificant differences in the anticipated repayment schedule.)
<TABLE>
<CAPTION>
Date Principal Repayment
---- -------------------
<S> <C>
December 31, 1989 $ 6.4
October 31, 1990 1.7
October 31, 1991 0.1
October 31, 1992 3.4
December 31, 1993 3.2
December 31, 1994 7.4
December 31, 1995 10.8
December 31, 1996 14.3
December 31, 1997 18.1
December 31, 1998 22.3
December 31, 1999 14.5
December 31, 2000 17.2
December 31, 2001 20.9
December 31, 2002 25.7
December 31, 2003 31.3
December 31, 2004 22.0
December 31, 2005 26.5
December 31, 2006 31.4
December 31, 2007 36.9
December 31, 2008 43.5
----
Total $ 357.5 (1)
-----
</TABLE>
The interest payment dates would match the highlighted repayment schedule
dates.
- ------------------------------
(1) The average life is approximately 13.75 years.
<PAGE>
PURCHASER SCHEDULE
Part I
List of Purchasers
<TABLE>
<CAPTION>
Principal Amount
of Notes
to be Purchased Denominations
--------------- -------------
<S> <C> <C>
The Prudential Insurance $148,450,000 148,450,000
Company of America
John Hancock Mutual $ 60,500,000 34,500,000
Life Insurance Company 26,000,000
Lincoln National Life $38,500,000 See Purchase
Insurance Company Schedule Part II
Massachusetts Mutual Life $ 33,000,000 11,000,000
Insurance Company 22,000,000
The Variable Annuity Life $ 27,500,000 27,500,000
Insurance Company
Cigna Investments $ 22,000,000 22,000,000
American United Life $ 8,800,000 2,000,000
Insurance Company 2,000,000
2,000,000
2,800,000
Century Life Insurance Company $ 2,000,000 2,000,000
Century Life of America $ 3,000,000 3,000,000
Ohio National Life Insurance $ 5,500,000 5,500,000
Company
General American Life $ 5,500,000 5,500,000
Insurance Company
Provident Mutual Life $ 2,750,000 2,750,000
Insurance Company
</TABLE>
<PAGE>
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the Vame to the
undersigned, whereupon this letter shall become a binding agreement between you
and the undersigned.
Very truly yours,
THE MELVILLE CORPORATION AND
SUBSIDIARIES EMPLOYEE STOCK
OWNERSHIP PLAN TRUST
By THE BANK OF NEW YORK,
as Trustee
By: /s/ Glen A. Rothbart
-------------------------------
Title: Assistant Vice President
MELVILLE CORPORATION
By: /s/ James A. Marcum
-------------------------------
Title: Treasurer
<PAGE>
The foregoing Agreement is
hereby accepted as of the
date first above written.
THE PRUDENTIAL INSUAANCE COMPANY
OF AMERICA
By /s/ Richard B. Rogers
---------------------
Title: Vice President
<PAGE>
PURCHASER SCHEDULE
Part I
List of Purchasers
<TABLE>
<CAPTION>
Principal Amount
of Notes
to be Purchased Denominations
--------------- -------------
<S> <C> <C>
The Prudential Insurance $148,450,000 148,450,000
Company of America
John Hancock Mutual $ 60,500,000 34,500,000
Life Insurance Company 26,000,000
Lincoln National Life $38,500,000 See Purchase
Insurance Company Schedule Part II
Massachusetts Mutual Life $ 33,000,000 11,000,000
Insurance Company 22,000,000
The Variable Annuity Life $ 27,500,000 27,500,000
Insurance Company
Cigna Investments $ 22,000,000 22,000,000
American United Life $ 8,800,000 2,000,000
Insurance Company 2,000,000
2,000,000
2,800,000
Century Life Insurance Company $ 2,000,000 2,000,000
Century Life of America $ 3,000,000 3,000,000
Ohio National Life Insurance $ 5,500,000 5,500,000
Company
General American Life $ 5,500,000 5,500,000
Insurance Company
Provident Mutual Life $ 2,750,000 2,750,000
Insurance Company
</TABLE>
<PAGE>
PURCHASER SCHEDULE
Part II
Notice and Payment Information
Purchaser
---------
THE PRUDENTIAL INSURANCE Melville Corporation ESOP
COMPANY OF AMERICA Notes due 2009
$148,450,000
(1) All payments on account of
Notes held by such purchaser
shall be made by wire
transfer of immediately
available funds for credit
to:
Account No. 050-54-460
Morgan Guaranty Trustee
of New York
23 Wall Street
New York, New York 10015
Each such wire transfer shall
set forth the name of the
Company, the full title
(including the coupon rate
and final maturity date)
of the Notes, a reference
to "Security No. 585745XA5",
and the due date and
application (as among principal,
premium and interest) of the
payment being made.
(2) Address for all notices
relating to payments:
The Prudential Insurance
Company of America
c/o The Prudential Corporate
Finance Group
1
<PAGE>
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4007
Attention: Manager, Investment
Information Services
(3) Address for all other
communications and notices:
The Prudential Insurance
Company of America
c/o The Prudential Corporate
Finance Group
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102-4007
Attention: Senior Managing Director
(4) Tax Identification No.:
22-1211670
2
<PAGE>
Name and Address of Purchaser
- -----------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60%, due 2009
GUARANTEED BENEFIT SUB-ACCOUNT $34,500,000
(1) Registered Securities in Name of
John Hancock Mutual Life Insurance Company.
(2) All payments shall be made by bank wire transfer of
immediately available funds not later than 12 noon,
Boston time, to:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Insurance Division
Account of: John Hancock Mutual Life Insurance Company
GBSA Account
Account Number: 535-84164
On Order of: [Name of Issuer]
(3) Contemporaneous with the above wire transfer, advice
setting forth (1) the full name, interest rate and
maturity date of the Notes or other obligations; (2)
allocation of payment between principal and interest and
any special payment; and (3) name and address of Bank (or
Trustee) from which wire transfer was sent, shall be
delivered or mailed to:
John Hancock Mutual Life Insurance Company
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Attention: Securities Administration T-56
(4) All other communications
John Hancock Mutual Life Insurance Company
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department, T-57
<PAGE>
(5) Tax Identification Number
04-1414660
2
<PAGE>
Name and Address of Purchaser
- -----------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60%, due 2009
GUARANTEED ACCOUNT $26,000,000
(1) All other communications shall be delivered or mailed to:
John Hancock Mutual Life Insurance Company
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department T-57
(2) All securities shall be registered in the name of
John Hancock Mutual Life Insurance Company.
(3) All payments shall be made by bank wire transfer of immediately available
funds for credit, not later than 12 noon, Boston time, to:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Insurance Division
Account of: John Hancock Mutual Life Insurance Company
Account Number: 279-80008
On Order of: [Name of Issuer]
(4) Contemporaneous with the above wire transfer, advice
setting forth (1) the full name, interest rate and
maturity date of the Notes or other obligations; (2)
allocation of payment between principal and interest and
any special payment; and (3) name and address of Bank (or
Trustee) from which wire transfer was sent, shall be
delivered or mailed to:
John Hancock Mutual Life Insurance Company
John Hancock Place
P.O. Box 111
Boston, Massachusetts 02117
Attention: Securities Administration T-56
(5) Tax Identification Number
04-1414660
3
<PAGE>
Name and Address of Purchaser
- -----------------------------
LINCOLN NATIONAL LIFE INSURANCE Melville Corporation ESOP
COMPANY - (REO) Notes due 2009
$2,500,000
(1) Registered Securities in Name of
The Lincoln National Life
Insurance Company
(2) All payments shall be made by bank wire transfer of
immediately available funds to:
Bankers Trust Company
ABA # 021001033
Attention: 99-087-897
New York, NY
For Account of: Lincoln National Life
Insurance Company - (REO)
Custody Acct Number: 98149
(3) Address for all communication
and notice of payments:
Lincoln National Investment
Management Company
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Securities Investment
Division - 2R
(4) Send securities by registered/insured
mail to:
Lincoln National Corporation
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Kenneth R. Hobson
Securities Custody Dept. - 1H
(5) Tax Identification Number
35-0472300
4
<PAGE>
Name and Address of Purchaser
- -----------------------------
LINCOLN NATIONAL LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes due 2009
$1,500,000
(1) Registered Securities in Name of
The Lincoln National Life
Reinsurance Company
(2) All payments shall be made by bank wire transfer of
immediately available funds to:
Bankers Trust Company
ABA # 021001033
Attention: 99-087-897
New York, NY
For Account of: Lincoln National Life
Reinsurance Company
Custody Acct Number: 98165
(3) Address for all communication
and notice of payments:
Lincoln National Investment
Management Company
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Securities Investment
Division - 2R
(4) Send securities by registered/insured
mail to:
Lincoln National Corporation
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Kenneth R. Hobson
Securities Custody Dept. - 1H
(5) Tax Identification Number
35-1679513
5
<PAGE>
Name and Address of Purchaser
- -----------------------------
LINCOLN NATIONAL LIFE INSURANCE Melville Corporation ESOP
COMPANY - (IAL) Notes due 2009
$13,500,000
(1) Registered Securities in Name of
The Lincoln National Life
Insurance Company
(2) All payments shall be made by bank wire transfer of
immediately available funds to:
Bankers Trust Company
ABA # 021001033
Attention: 99-087-897
New York, New York
For Account of: Lincoln National Life
Insurance Company - (IAL)
Custody Acct. Number: 98194
(3) Address for all communication
and notice of payments:
Lincoln National Investment
Management Company
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Securities Investment
Division - 2R
(4) Send securities by registered/insured
mail to:
Lincoln National Corporation
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Kenneth R. Hobson
Securities Custody Dept. - 1H
(5) Tax Identification Number
35-0472300
6
<PAGE>
Name and Address of Purchaser
- -----------------------------
LINCOLN NATIONAL LIFE INSURANCE Melville Corporation ESOP
COMPANY SEPARATE ACCOUNT NO. 6 Notes due 2009
$10,000,000
(1) Registered Securities in Name of
The Lincoln National Life
Insurance Company Separate
Account No. 6
(2) All payments shall be made by bank wire transfer of
immediately available funds to:
Bankers Trust Company
ABA # 021001033
Attention: 99-087-897
New York, New York
For Account of: Lincoln National Life
Insurance Company Separate Account No. 6
Custody Acct. Number: 98208
(3) Address for all communication
and notice of payments:
Lincoln National Investment
Management Company
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Securities Investment
Division - 2R
(4) Send securities by registered/insured
mail to:
Lincoln National Corporation
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Kenneth R. Hobson
Securities Custody Dept. - 1H
(5) Tax Identification Number
35-0472300
7
<PAGE>
Name and Address of Purchaser
- -----------------------------
LINCOLN NATIONAL LIFE Melville Corporation ESOP
INSURANCE COMPANY - (UIN) Notes due 2009
$5,000,000
(1) Registered Securities in Name of
The Lincoln National Life
Insurance Company
(2) All payments shall be made by bank wire transfer of
immediately available funds to:
Bankers Trust
ABA # 021001033
Attention: 99-087-897
New York, New York
For Account of: Lincoln National Life
Insurance Company - (UIN)
Custody Acct. Number: 98127
(3) Address for all communication
and notice of payments:
Lincoln National Investment
Management Company
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Securities Investment
Division - 2R
(4) Send securities by registered/insured
mail to:
Lincoln National Corporation
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Kenneth R. Hobson
Securities Custody Dept. - 1H
(5) Tax Identification Number
35-0472300
8
<PAGE>
Name and Address of Purchaser
- ------------------------------
FIRST PENN-PACIFIC LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes due 2009
$3,000,000
(1) Registered Securities in Name of
First Penn-Pacific Life
Insurance Company in care of
Mellon Bank, N.A.
(2) All payments shall be made by bank wire transfer of
immediately available funds to:
Mellon Bank N.A.
Mellon Square, Pittsburg, PA
ABA #043000261
Attn. Collections/Mellon Pit/Trust/First
Penn-Pacific Life Insurance Company/075-205
(with reference to security & payments)
(3) Address for all communication
and notice of payments:
Lincoln National Investment
Management Company
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Securities Investment Division 2-R
(4) Send securities by registered/insured
mail to:
Mellon Securities Trust Company
120 Broadway, 33rd Floor
New York, New York 10271
Attn: Securities Teller Window -
Liz Fisher
For Acct. of: First Penn-Pacific
Life Ins. Co.
(5) Custody Acct.
075-205
9
<PAGE>
(6) Tax Identification Number
23-2044248
10
<PAGE>
Name and Address of Purchaser
- -----------------------------
SECURITY-CONNECTICUT LIFE- Melville Corporation ESOP
(UNIVERSAL LIFE) Notes due 2009
$3,000,000
(1) Registered Securities in Name of
Security-Connecticut Life
Insurance Company - Universal Life
(2) All payments shall be made by bank wire transfer of
immediately available funds to:
Connecticut National Bank
777 Main Street, Hartford, CT 06115
ABA Routing #: 011900445
For Account of: Security-Connecticut Life Ins.
Co. - Universal Life
Custody Account No. 0156196
(with reference to security and payment)
(3) Address for all communication
and notice of payments:
Lincoln National Investment Management Company
1300 South Clinton Street
Fort Wayne, IN 46801
Attention: Securities Investment Division 2-R
(4) Address for all notices with
respect to payments:
Security-Connecticut Life
Insurance Company
20 Security Drive
Avon, CT 06001
Attentional: Brigid M. Webster
11
<PAGE>
(5) Send securities by registered/insured
mail to:
Security-Connecticut Life Insurance Company
20 Security Drive
Avon, CT 06001
Attention: Brigid M. Webster
(6) Tax Identification Number
35-1468921
12
<PAGE>
Name and Address of Purchaser
- -----------------------------
MASSACHUSETTS MUTUAL LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60% due 2009
$33,000,000
Number and Denomination of Note(s):
Two (2) Notes as follows $11,000,000
$22,000,000
(1) All payments on or in respect of the
Notes to be by bank wire transfer of
Federal or other immediately
available funds (identifying each
payment as, principal or interest")
to:
Chemical Bank
Institutional Custody Department
55 Water Street
North Building
3rd Floor
New York, New York 10041
(i) in the case of Note No. R-1,
(11,000,000) for credit to
Massachusetts Mutual Life
Insurance Company's
"Mass Mutual IPL Traditional
Account" No. 321-029-852
(i) in the case of Note No. R-2,
(22,000,000) for credit to
Massachusetts Mutual Life
Insurance Company's
"Mass Mutual SPC
Account" No. 3890-4953
with telephone advice to the
Financial Services Department of
Massachusetts Mutual Life Insurance
Company
13
<PAGE>
(2) Address for all communications and notice of payment:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Securities Investment Division
(3) Send all securities by registered/ insured mail to:
Citibank, N.A.
20 Exchange Place
New York, New York 10005
None.
(4) Tax Identification Number
04-1590850
14
<PAGE>
Name and Address of Purchaser
- -----------------------------
THE VARIABLE ANNUITY LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60% due 2009
$27,500,000
(1) All payments to be by wire transfer of immediately
available funds with sufficient information (including
interest rate, maturity date, interest amount, principal
amount and premium amount, if applicable) to identify the
source and application of such funds, to:
State Street Bank and Trust Company
BOS/SPEC/O10O-0002-8
Mutual Fund - Maryanne Bertone
Re: American General/VALIC PA 54
(2) All Notices of Payments and written confirmation of such
wire transfers:
American General/VALIC
P.O. Box 17416
Newark, NJ 07194
with duplicate notices to:
The Variable Annuity Life Insurance Company
% American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attn: Private Placements, A37-01
(3) All other communications to:
The Variable Annuity Life Insurance Company
% American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attn: Private Placements, A37-01
(4) Tax Identification Number:
74-1625348
15
<PAGE>
Name and Address of Purchaser
- -----------------------------
CONNECTICUT GENERAL LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60% due 2009
$22,000,000
(1) In the case of all payments on account of
the Notes:
By crediting in the form of bank wire
transfer of Federal or other immediately
available funds, providing sufficient
information to identify the source of the
transfer, and the amount of interest
and/or principal, to Connecticut General
Life Insurance Company Account No.
201-012-7 at:
The Connecticut Bank and Trust Company,
National Association
One Constitution Plaza
Hartford, Connecticut 06115
(2) In the case of all notices with respect
to payments:
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152
Attention: Securities Accounting
Department
(3) In the case of other communications:
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
Hartford, Connecticut 06152 *
Attention: Private Placement Department
16
<PAGE>
* In the event that notices/communications
are sent by courier (e.g., Federal
Express, Airborne) or Express Mail rather
than by regular U.S. Postal Service,
substitute "900 Cottage Grove Road,
Bloomfield, Connecticut 06002" in place
of "Hartford, Connecticut 066152."
(4) Tax Identification Number
06-0303370
17
<PAGE>
Name and Address of Purchaser
- -----------------------------
AMERICAN UNITED LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60% due 2009
$8,800,000
Number and Denomination of Note(s):
Four (4) Notes as follows: $2,000,000
$2,000,000
$2,000,000
$2,800,000
(1) Registered Securities in the name of
American United Life Insurance Company
(2) All payments in immediately
available funds by wire transfer to
the following bank account:
Bank One Indianapolis
ABA #0740-0001-0
Account #32032-50
Securities Trust Area
8th Floor
101 Monument Circle
Indianapolis, IN 46277
(3) Address for all communications
and Notice of payment:
Securities Department
American United Life Insurance Company
Post Office Box 368
Indianapolis IN 46206
(4) Send all securities by registered/
insured mail to:
Bank One Indianapolis
101 Monument Circle
Indianapolis IN 46277
Attention: Safekeeping Dept.
18
<PAGE>
(5) Tax Identification Number
35-0145825
19
<PAGE>
Name and Address of Purchaser
- -------------------------------
CENTRAL LIFE INSURANCE COMPANY Melville Corporation ESOP
Notes 8.60% due 2009
$2,000,000
(1) All payments by wire transfer
of immediately available funds
to:
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675 ABA#071000152
For credit to Century Life Insurance Co.,
Account #433-063
with sufficient information
to identify the source and application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
Century Life Insurance Company
ATTN: Cashier Department
Heritage Way
Waverly, IA 50677
(3) All other communications:
Century Life Insurance Company
ATTN: Securities Division
Heritage Way
Waverly, IA 50677
(4) Tax Identification Number
42-1153896
20
<PAGE>
Name and Address of Purchaser
- ----------------------------------
CENTURY LIFE OF AMERICA Melville Corporation ESOP
Notes 8.60% due 2009
$3,000,000
(1) All payments by wire transfer
of immediately available
funds to:
The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
For credit to Century Life of America, Account #842-869 with sufficient
information to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
Century Life of America
ATTN: Cashier Department
Heritage Way
Waverly, IA 50677
(3) All other communications:
Century Life of America
ATTN: Securities Division
Heritage Way
Waverly, IA 50677
(4) Tax Identification Number
42-0388260
21
<PAGE>
Name and Address of Purchaser
- -------------------------------
THE OHIO NATIONAL LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60% due 2009
$5,500,000
(1) Registered Securities in the Name of
The Ohio National Life Insurance Company
(2) All payments of immediately available funds
by bank wire transfer to:
STAR Bank N.A.
5th & Walnuts Streets
Cincinnati, Ohio 45202
Far Account of The Ohio
National Life Insurance Co.
Account Number: 910-275-7
(3) All other communications send to:
The Ohio National Life Insurance
Company
P.O. Box 237
Cincinnati, Ohio 45201
Attention: Investment Department
(4) Tax Identification Number
31-0397080
22
<PAGE>
Name and Address of Purchaser
- ---------------------------------
GENERAL AMERICAN LIFE INSURANCE Melville Corporation ESOP
COMPANY Notes 8.60% due 2009
$5,500,000
(1) Registration Security in the name of:
GALICO
(2) Wire Transfer Information
--------------------------
Boatmen's Bank
One Boatman's Plaza
St. Louis, MO 63101
Account #: 100100000342
Identify source and use of funds
ABA #: 081000032
Safekeeping #: 320618
(3) Notices Regarding Payments
---------------------------
General American Life Insurance Company
P. O. Box 418
St. Louis, MO 63166
Attn: Investment Accounting
(4) All Other Notices:
-------------------
General American Life Insurance Company
P. O. Box 396
St. Louis, MO 63166
Attn: Securities Division
4th Floor
(5) Tax Identification Number
---------------------------
43-6168630
23
<PAGE>
Name and Address of Purchaser
- --------------------------------
PROVIDENT MUTUAL LIFE INSURANCE Melville Corporation
COMPANY Notes ESOP8 due 2009
$2,750,000
(1) Registered Securities in name of:
Provident National Bank
(2) All payments made by bank wire
transfer of immediately available
funds to:
Provident National Bank
Broad and Chestnut Street
Philadelphia, PA 19101
Account Number 200-049-0
(3) Address for all other communication and Notice of Payments:
Provident Mutual Life Insurance Co.
1600 Market Street, 4th Floor
Philadelphia, PA 19103
Attention: Treasurer
(4) Send all securities by registered/ insured mail to:
Provident National Bank
Broad and Chestnut Street
Philadelphia, PA 19107
(5) Tax Identification Number:
23-0990450
<PAGE>
EXHIBIT 10(iii)(A)(xi)
CVS CORPORATION
- --------------------------------------------------------------------------------
Deferred Stock Compensation Plan
- --------------------------------------------------------------------------------
<PAGE>
CVS CORPORATION
- --------------------------------------------------------------------------------
Deferred Stock Compensation Plan
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Purposes ...................................................... 1
2. Definitions ................................................... 1
3. Administration ................................................ 2
4. Participation ................................................. 3
5. Deferrals ..................................................... 3
6. Deferral Accounts ............................................. 4
7. Settlement of Deferral Accounts ............................... 5
8. Provisions Relating to Section 16 of the Exchange Act
and Section 162(m) of the Code ................................ 6
9. Statements .................................................... 6
10. Sources of Stock: Limitation on Amount of
Stock-Denominated Deferrals ................................... 6
11. Amendment/Termination ......................................... 6
12. General Provisions ............................................ 6
13. Effective Date ................................................ 8
</TABLE>
<PAGE>
CVS CORPORATION
- --------------------------------------------------------------------------------
Deferred Stock Compensation Plan
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. Purposes. The purposes of this Deferred Stock Compensation Plan
(the "Plan") are to provide certain highly compensated employees of CVS
Corporation (the "Company") and its subsidiaries with the opportunity to
elect to defer receipt of shares of Stock under certain Stock-based
compensation plans or arrangements.
2. Definitions. In addition to the terms defined in Section 1 above,
the following terms used in the Plan shall have the meanings set forth below:
(a) "Administrator" shall mean the Deferred Stock Compensation
Committee set forth in Section 3(b) to whom the Committee has delegated the
authority to take action under the Plan, except as may be otherwise required
under Section 8.
(b) "Beneficiary" shall mean any person (which may include trusts
and is not limited to one person) who has been designated by the Participant
in his or her most recent written beneficiary designation filed with the
Company to receive the benefits specified under the Plan in the event of the
Participant's death. If no Beneficiary has been designated who survives the
Participant's death, then Beneficiary means any person(s) entitled by will
or, in the absence thereof, the laws of descent and distribution to receive
such benefits.
(c) "Change in Control" shall have the meaning given to such term
in the CVS Corporation 1997 Incentive Compensation Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as
amended. References to any provision of the Code or regulation (including a
proposed regulation) thereunder shall include any successor provisions or
regulations.
(e) "Committee" shall mean the Compensation Committee of the Board
of Directors of the Company or any other directors of the Company designated
as the Committee. Except as may be otherwise required under Section 8 or by
applicable law, any function of the Committee may be delegated to the
Administrator.
(f) "Deferral Account" shall mean the account or subaccount
established and maintained by the Company for Stock deferrals by a
Participant, as described in Section 6. A Deferral Account will be
maintained solely as a bookkeeping entry by the Company to evidence unfunded
obligations of the Company.
(g) "Deferred Stock" shall mean a right to receive Stock at the
end of a specified deferral period.
(h) "Disability" shall have the meaning given to such term in the
Company's Long-Term Disability Plan.
<PAGE>
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended. References to any provision of the Exchange Act or rule
thereunder shall include any successor provisions or rules.
(j) "Participant" shall mean any employee of the Company or any
subsidiary who is designated by the Committee as an eligible Participant in
the Plan and who participates or makes an election to participate in the Plan.
(k) "Retirement" shall mean a Participant's voluntary termination
of employment (i) at or after attaining age 60 or (ii) at or after attaining
age 55, but prior to attaining age 60, if such termination is approved in
advance by the Committee.
(l) "Stock" shall mean CVS Corporation Common Stock, or any other
equity securities of the Company designated by the Committee.
(m) "Trust" shall mean any trust or trusts established or
designated by the Company to hold Stock or other assets in connection with
the Plan; provided, however, that the assets of such trusts shall remain
subject to the claims of the general creditors of the Company.
(n) "Trustee" shall mean the trustee of a Trust.
(o) "Trust Agreement" shall mean the agreement entered into
between the Company and the Trustee to carry out the purposes of the Plan, as
amended or restated from time to time.
3. Administration.
(a) Authority. Both the Committee and the Administrator (subject
to the ability of the Committee to restrict the Administrator) shall
administer the Plan in accordance with its terms, and shall have all powers
necessary to accomplish such purpose, including the power and authority to
construe and interpret the Plan, to define the terms used herein, to
prescribe, amend and rescind rules and regulations, agreements, forms, and
notices relating to the administration of the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan.
Any actions of the Committee or the Administrator with respect to the Plan
shall be conclusive and binding upon all persons interested in the Plan,
except that any action of the Administrator will not be binding on the
Committee. The Committee and Administrator may each appoint agents and
delegate thereto powers and duties under the Plan, except as otherwise
limited by the Plan.
(b) Administrator. The Deferred Stock Compensation Committee
shall consist of such number of members as shall be determined by the
Committee, each of whom shall be appointed by, shall remain in office at the
will of, and may be removed, with or without cause, by the Committee. Any
member of the Deferred Stock Compensation Committee may resign at any time.
No member of the Deferred Stock Compensation Committee shall be entitled to
act on or decide any matter relating solely to himself or herself or any of
his or her rights or benefits under the Plan. The members of the Deferred
Stock Compensation Committee shall not receive any special compensation for
serving in their capacities as members of the Deferred Stock Compensation
Committee but shall be reimbursed for any reasonable expenses incurred in
connection therewith. No bond or other security need be required of the
Deferred Stock Compensation Committee or any member thereof in any
jurisdiction.
2
<PAGE>
(c) Limitation of Liability. Each member of the Committee and the
Administrator shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any officer or other
employee of the Company or any subsidiary, the Company's independent
certified public accountants, or any executive compensation consultant, legal
counsel, or other professional retained by the Company to assist in the
administration of the Plan. To the maximum extent permitted by law, no
member of the Committee or the Administrator, nor any person to whom
ministerial duties have been delegated, shall be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of the Plan.
4. Participation. The Administrator will notify each person of his or
her participation or eligibility to participate in the Plan not later than 15
days (or such lesser period as may be practicable in the circumstances) prior
to any deadline for filing an election form.
5. Deferrals. To the extent authorized by the Committee, a
Participant may elect to defer any award or other compensation which is in
the form of Stock or units denominated in Stock to be received from the
Company or a subsidiary, including shares issuable in connection with annual
incentive awards, long term awards or stock option exercises; provided,
however, that a Participant who is an employee of the Company or a subsidiary
may defer, with respect to a given year, receipt of only that portion of the
Participant's compensation that exceeds the FICA maximum taxable wage base
plus the amount necessary to satisfy Medicare and all other payroll taxes
(other than Federal, state or local income tax withholding) imposed on the
wages of such Participant from the Company and its subsidiaries. In addition
to such limitation, and any terms and conditions of deferral set forth under
plans, programs or arrangements from which receipt of the Stock-denominated
award or other compensation is deferred, the Committee may impose limitations
on the amounts permitted to be deferred and other terms and conditions of
deferrals under the Plan. Any such limitations, and other terms and
conditions of deferral, shall be set forth in the rules relating to the Plan
or election forms, other forms, or instructions published by the Committee
and/or the Administrator.
(a) Elections. Once an election form, properly completed, is
received by the Company, the elections of the Participant shall be
irrevocable; provided, however, that the Committee and/or the Administrator
may, in its discretion, permit a Participant to elect a further deferral of
amounts credited to a Deferral Account by filing a later election form;
provided, further, that, unless otherwise approved by the Committee, any
election to further defer amounts credited to a Deferral Account must be made
at least one (1) year prior to the date such amounts would otherwise be
payable.
(b) Date of Election. An election to defer Stock-denominated
awards or other compensation hereunder must be received by the Administrator
prior to the date specified by the Administrator. Under no circumstances may
a Participant defer Stock-denominated awards or other compensation to which
the Participant has attained, at the time of deferral, a legally enforceable
right to current receipt of such Stock-denominated awards or other
compensation.
3
<PAGE>
6. Deferral Accounts.
(a) Establishment; Crediting of Amounts Deferred. One or more
Deferral Accounts will be established for each Participant, as determined by
the Administrator. The amount of Stock-denominated awards or other
compensation deferred with respect to each Deferral Account will be credited
to such Account as of the date on which such amounts would have been paid to
the Participant but for the Participant's election to defer receipt
hereunder. Unless otherwise determined by the Administrator, shares will be
credited to the Participant's Deferral Account as units of Deferred Stock (as
opposed to cash amounts valued by reference to the market price of Stock).
With respect to any fractional shares of Stock or Stock-denominated awards,
the Administrator, in its sole discretion, shall either pay such fractional
shares to the Participant in cash, credit the Deferral Account with cash in
lieu of depositing fractional shares into the Deferral Account, or credit the
Deferral Account with a fraction of a share calculated to at least three
decimal places.
(b) Deferred Stock As Sole Investment Vehicle. Amounts credited
as Deferred Stock to a Participant's Deferral Account may not be reallocated
or deemed reinvested in any other investment vehicle, but shall remain as
Deferred Stock until such time as the Deferral Account is settled in
accordance with Section 7.
(c) Dividend Equivalents. Except as provided in Section 6(d),
dividend equivalents will be credited on Deferred Stock credited to a
Participant's Deferral Account as follows:
(i) Cash and Non-Stock Dividends. If the Company declares and pays a
dividend on Stock in the form of cash or property other than shares of
Stock, then a number of additional shares of Deferred Stock shall be
credited to a Participant's Deferral Account as of the payment date for
such dividend equal to (A) the number of shares of Deferred Stock credited
to the Deferral Account as of the record date for such dividend, multiplied
by (B) the amount of cash plus the fair market value of any property other
than shares actually paid as a dividend on each share at such payment date,
divided by (C) the fair market value of a share of Stock at such payment
date.
(ii) Stock Dividends and Splits. If the Company declares and pays a
dividend on Stock in the form of additional shares of Stock, or there
occurs a forward split of Stock, then a number of additional shares of
Deferred Stock shall be credited to the Participant's Deferral Account as
of the payment date for such dividend or forward Stock split equal to (A)
the number of shares of Deferred Stock credited to the Deferral Account as
of the record date for such dividend or split, multiplied by (B) the number
of additional shares actually paid as a dividend or issued in such split in
respect of each share of Stock.
(d) Trusts. The Committee may, in its discretion, establish one
or more Trusts (including sub-accounts under such Trusts), and deposit
therein shares of Stock equal in number to the number of shares of Deferred
Stock then credited to a Participant's Deferral Account (or a specified
subaccount). In such case, the provisions of Section 6(c) notwithstanding,
the dividend equivalents payable on the Participant's Deferred Stock shall be
equal to the actual dividends paid on the shares deposited in such Trust
(which dividends shall be reinvested by the Trustee in additional shares of
Stock), and shares may be delivered in settlement of the Participant's
Deferred Stock from the assets in such Trusts. The Participant's rights with
respect to directing the voting of shares held in such Trust or otherwise
relating to such shares shall be determined by the Administrator in its
discretion.
4
<PAGE>
(e) Cashless Exercise. If and to the extent permitted by the
Committee, and subject to such terms and conditions as may be established by
the Committee from time to time, a Participant may submit a request to the
Administrator to surrender (or constructively surrender) Deferred Stock
credited to his or her Deferral Account to pay the purchase price of any
stock option granted to the Participant under another Company plan, program
or arrangement, which request the Administrator may approve in its discretion.
7. Settlement of Deferral Accounts.
(a) Form of Payment. The Company shall settle a Participant's
Deferral Account, and discharge all of its obligations to pay deferred
compensation under the Plan with respect to such Deferral Account, by
delivery of shares of Stock, including shares of Stock delivered out of the
assets of the Trust.
(b) Forfeited Stock. To the extent that Stock (i) is deposited in
a Trust pursuant to Section 6 in connection with a deferral of Stock or a
Stock-denominated award under another plan, program, employment agreement or
other arrangement and (ii) is forfeited pursuant to the terms of such plan,
program, agreement or arrangement, the Participant shall not be entitled to
the value of such Stock and other property related thereto (including without
limitation, dividends thereon) or other award or amount, or proceeds thereof.
Any Stock or Stock-denominated awards (and proceeds thereof) forfeited shall
be returned to the Company.
(c) Timing of Payments. Payments in settlement of a Deferral
Account shall be made as soon as practicable after the date or dates
(including upon the occurrence of specified events), and in such number of
installments, as may be directed by the Participant in his or her election
relating to such Deferral Account, or earlier in the following circumstances:
(i) In the event of termination of employment for reasons other than
Retirement or Disability, a single lump sum payment in settlement of any
Deferral Account (including a Deferral Account with respect to which one or
more installment payments have previously been made) shall be made as
promptly as practicable following such termination, unless otherwise
determined by the Administrator; or
(ii) In the event of a Change in Control, payments in settlement of
any Deferral Account (including a Deferral Account with respect to which
one or more installment payments have previously been made) shall be made
within fifteen (15) business days following such Change in Control.
(d) Financial Emergency and Other Payments. Other provisions of
the Plan (except Section 8) notwithstanding, if, upon the written application
of a Participant, the Committee determines that the Participant has a
financial emergency of such a substantial nature and beyond the individual's
control that payment of amounts previously deferred under the Plan is
warranted, the Committee may direct the payment to the Participant of all or
a portion of the balance of a Deferral Account and the time and manner of
such payment.
5
<PAGE>
8. Provisions Relating to Section 16 of the Exchange Act and Section
162(m) of the Code.
(a) Compliance with Section 16. With respect to a Participant who
is then subject to the reporting requirements of Section 16(a) of the
Exchange Act, the Committee and Administrator shall implement transactions
under the Plan and administer the Plan in a manner that will ensure that each
transaction by such a Participant is exempt from or otherwise not subject to
liability under Rule 16b-3, except that such a Participant may be permitted
to engage in a non-exempt transaction under the Plan if written notice is
given to the Participant regarding the non-exempt nature of such transaction.
(b) Compliance with Code Section 162(m). It is the intent of the
Company that any compensation (including any award) deferred under the Plan
by a person who is, with respect to the year of payout, deemed by the
Committee to be a "covered employee" within the meaning of Code Section
162(m) and regulations thereunder, which compensation constitutes "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder, shall not, as a result of deferral hereunder, become
compensation with respect to which the Company in fact would not be entitled
to a tax deduction under Code Section 162(m). Accordingly, unless otherwise
determined by the Committee, if any compensation would become so disqualified
under Section 162(m) as a result of deferral hereunder, the terms of such
deferral shall be automatically modified to the extent necessary to ensure
that the compensation would not, at the time of payout, be so disqualified.
9. Statements. The Administrator will furnish statements to each
Participant reflecting the amount credited to a Participant's Deferral
Accounts and transactions therein not less frequently than once each calendar
year.
10. Sources of Stock: Limitation on Amount of Stock-Denominated
Deferrals. If shares of Stock are deposited under the Plan in a Trust
pursuant to Section 6 in connection with a deferral of a Stock-denominated
award under another plan, program, employment agreement or other arrangement
that provides for the issuance of shares, the shares so deposited shall be
deemed to have originated, and shall be counted against the number of shares
reserved, under such other plan, program or arrangement. Shares of Stock
actually delivered in settlement of Deferral Accounts shall be originally
issued shares or treasury shares, in the discretion of the Committee.
11. Amendment/Termination. The Committee may, with prospective or
retroactive effect, amend, alter, suspend, discontinue, or terminate the Plan
at any time without the consent of Participants, stockholders, or any other
person; provided, however, that, without the consent of a Participant, no
such action shall materially and adversely affect the rights of such
Participant with respect to any rights to payment of amounts credited to such
Participant's Deferral Account. Notwithstanding the foregoing, the Committee
may, in its sole discretion, terminate the Plan (in whole or in part) and
distribute to Participants (in whole or in part) the amounts credited to
their Deferral Accounts.
12. General Provisions.
(a) Limits on Transfer of Awards. Other than by will or the laws
of descent and distribution, no right, title or interest of any kind in the
Plan shall be transferable or assignable by a Participant or his or her
Beneficiary or be subject to alienation, anticipation, encumbrance,
garnishment, attachment, levy, execution or other legal or equitable process,
nor subject to the debts, contracts, liabilities or engagements, or torts of
any Participant or his or her
6
<PAGE>
Beneficiary. Any attempt to alienate, sell, transfer, assign, pledge,
garnish, attach or take any other action subject to legal or equitable
process or encumber or dispose of any interest in the Plan shall be void.
(b) Receipt and Release. Payments (in any form) to any
Participant or Beneficiary in accordance with the provisions of the Plan
shall, to the extent thereof, be in full satisfaction of all claims for the
awards or other compensation deferred and relating to the Deferral Account to
which the payments relate against the Company or any subsidiary thereof, the
Committee, or the Administrator, and the Administrator may require such
Participant or Beneficiary, as a condition to such payments, to execute a
receipt and release to such effect. In the case of any payment under the
Plan of less than all amounts then credited to an account in the form of
Stock, the amounts paid shall be deemed to relate to the Stock credited to
the account at the earliest time.
(c) Unfunded Status of Awards; Creation of Trusts. The Plan is
intended to constitute an "unfunded" plan for deferred compensation and
Participants shall rely solely on the unsecured promise of the Company for
payment hereunder. With respect to any payment not yet made to a Participant
under the Plan, nothing contained in the Plan shall give a Participant any
rights that are greater than those of a general unsecured creditor of the
Company; provided, however, that the Committee may authorize the creation of
Trusts, including but not limited to the Trusts referred to in Section 6
hereof, or make other arrangements to meet the Company's obligations under
the Plan, which Trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant.
(d) Compliance. A Participant in the Plan shall have no right to
receive payment (in any form) with respect to his or her Deferral Account
until legal and contractual obligations of the Company relating to
establishment of the Plan and the making of such payments shall have been
complied with in full. In addition, the Company shall impose such
restrictions on Stock delivered to a Participant hereunder and any other
interest constituting a security as it may deem advisable in order to comply
with the Securities Act of 1933, as amended, the requirements of the New York
Stock Exchange or any other stock exchange or automated quotation system upon
which the Stock is then listed or quoted, any applicable state securities
laws, any provision of the Company's Certificate of Incorporation or Bylaws,
or any other law, regulation, or binding contract to which the Company is a
party.
(e) Other Participant Rights. No Participant shall have any of
the rights or privileges of a stockholder of the Company under the Plan,
including as a result of the crediting of Stock-denominated units or other
amounts to a Deferral Account, or the creation of any Trust and deposit of
such Stock therein, except at such time as Stock may be actually delivered in
settlement of a Deferral Account. No provision of the Plan or transaction
hereunder shall confer upon any Participant any right to be employed by the
Company or a subsidiary thereof, or to interfere in any way with the right of
the Company or a subsidiary to increase or decrease the amount of any
compensation payable to such Participant. Subject to the limitations set
forth in Section 12(a) hereof, the Plan shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns.
(f) Tax Withholding. The Company and any subsidiary shall have
the right to deduct from amounts otherwise payable in settlement of a
Deferral Account any sums that federal, state, local or foreign tax law
requires to be withheld with respect to such payment. Shares may be withheld
to satisfy such obligations in any case where taxation would be imposed upon
the delivery of shares, except that shares issued or delivered under any
plan, program, employment agreement or other arrangement may be withheld only
in accordance with the terms
7
<PAGE>
of such plan, program, employment agreement or other arrangement and any
applicable rules, regulations, or resolutions thereunder.
(g) Governing Law. The validity, construction, and effect of the
Plan and any rules and regulations relating to the Plan shall be determined
in accordance with the laws of the State of Delaware, without giving effect
to principles of conflicts of laws, and applicable provisions of federal law.
(h) Limitation. A Participant and his or her Beneficiary shall
assume all risk in connection with any decrease in value of the Deferral
Account and neither the Company, the Committee nor the Administrator shall be
liable or responsible therefor.
(i) Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Stock, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange,
liquidation, dissolution or other similar corporate transaction or event
affects the Stock such that an adjustment is determined by the Administrator
or the Committee to be appropriate in order to prevent dilution or
enlargement of a Participant's rights under the Plan, then the Administrator
or the Committee shall, in such manner as it may deem equitable, adjust any
or all of the number and kind of shares of Stock to be issued upon settlement
of Deferred Stock then credited to a Deferral Account under the Plan.
(j) Construction. The captions and numbers preceding the sections
of the Plan are included solely as a matter of convenience of reference and
are not to be taken as limiting or extending the meaning of any of the terms
and provisions of the Plan. Whenever appropriate, words used in the singular
shall include the plural or the plural may be read as the singular.
(k) Severability. In the event that any provision of the Plan
shall be declared illegal or invalid for any reason, said illegality or
invalidity shall not affect the remaining provisions of the Plan but shall be
fully severable, and the Plan shall be construed and enforced as if said
illegal or invalid provision had never been inserted herein.
(l) Status. The establishment and maintenance of, or allocations
and credits to, the Deferral Account of any Participant shall not vest in any
Participant any right, title or interest in and to any Plan or Company assets
or benefits except at the time or times and upon the terms and conditions and
to the extent expressly set forth in the Plan and in accordance with the
terms of the Trust.
13. Effective Date. The Plan shall be effective as of September 10,
1997.
8
<PAGE>
Exhibit 11
CVS Corporation
Computation of Earnings Per Common Share
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995
- --------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Basic earnings (loss) per common share:
Net earnings (loss)................................................................... $ 37.7 $ 176.6 $ (572.8)
Less: Preference dividends, net of tax benefits........................................ 13.7 14.5 17.0
--------- --------- ---------
Net earnings (loss) available to common shareholders................................... $ 24.0 $ 162.1 $ (589.8)
Weighted average number of shares outstanding.......................................... 169.8 165.3 163.7
--------- --------- ---------
Basic earnings (loss) per common share................................................. $ 0.14 $ 0.98 $ (3.60)
--------- --------- ---------
--------- --------- ---------
Diluted earnings (loss) per common share: (1)
Net earnings (loss).................................................................... $ 37.7 $ 176.6 $ (572.8)
Less: Preference dividends, net of tax benefits........................................ 13.7 -- 17.0
--------- --------- ---------
Net earnings (loss) available to common shareholders................................... $ 24.0 $ 176.6 $ (589.8)
Less: Adjustments assuming conversion of the Series One ESOP
Convertible Preference Stock, for the following: (i)
additional contributions to the ESOP to cover the shortfall
between the Series One ESOP Convertible Preference Stock and
Common Stock dividends and (ii) reductions in incentive bonuses
and profit sharing, net of tax benefits........................................ -- 7.5 --
--------- --------- ---------
Adjusted net earnings (loss) available to common shareholders.......................... $ 24.0 $ 169.1 $ (589.8)
--------- --------- ---------
Weighted average number of shares outstanding.......................................... 169.8 165.3 163.7
Add: Weighted average shares of Series One ESOP
Convertible Preference Stock assuming conversion....................................... -- 5.9 --
Add: Weighted average number of shares which could have been issued upon exercise of
outstanding options.................................................................. 3.2 2.0 0.6
Adjusted weighted average number of shares outstanding................................. 173.0 173.2 164.3
--------- --------- ---------
Diluted earnings (loss) per common share............................................... $ 0.14 $ 0.98 $ (3.59)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) In 1995 and 1997, the assumed conversion of the Series One ESOP Convertible
Preference Stock would have increased diluted earnings per common share and,
therefore, was not considered.
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CVS CORPORATION
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Fixed Charges: (1)
Interest Expense..................................................... $ 57.7 $ 83.2 $114.9 $ 89.3 $ 48.7
Interest Capitalized................................................. 0.2 0.1 0.2 0.2 0.6
Interest Portion of Net Rental Expense (2)........................... 128.7 119.6 112.2 99.8 76.0
Amortization of Debt Expense......................................... 0.1 0.1 0 .1 0.1 0.1
--------- --------- --------- --------- ---------
Total Fixed Charges.................................................. $186.7 $203.0 $227.4 $189.4 $125.4
--------- --------- --------- --------- ---------
Adjusted Fixed Charges:
Total Fixed Charges.................................................. $186.7 $203.0 $227.4 $189.4 $125.4
Interest Capitalized ................................................ 0.2 0.1 0.2 0.2 0.6
--------- --------- --------- --------- ---------
Adjusted Fixed Charges............................................... $186.5 $202.9 $227.2 $189.2 $124.8
--------- --------- --------- --------- ---------
Earnings:
Net earnings from continuing operations before
income taxes and extraordinary item (3) (4) (5).................... $155.0 $592.0 $116.2 $290.4 $240.3
Adjusted Fixed Charges............................................... 186.5 202.9 227.2 189.2 124.8
--------- --------- --------- --------- ---------
$341.5 $794.9 $343.4 $479.6 $365.1
--------- --------- --------- --------- ---------
Ratio of Earnings to Fixed Charges..................................... 1.83 3.92 1.51 2.54 2.93
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
Note: All periods presented exclude the results of the footwear, apparel and
toys and home furnishing operating businesses, which have been classified as
discontinued operations.
(1) The Company formed an Employee Stock Ownership Plan effective January 1,
1989. On June 23, 1989, the ESOP Trust borrowed $357.5 million from
qualified lenders, the proceeds of which were used to purchase a new series
of preference stock issued by the Company. The loan to the ESOP Trust has
been guaranteed by the Company. Annualized dividends on preference stock
totaled $20.8 million in 1997, $21.8 million in 1996, $24.3 million in 1995,
$24.9 million in 1994 and $25.3 million in 1993. These amounts are not
reflected in the calculation above.
(2) The interest portion of the net rental expense is estimated to be equal to
one-third of the minimum rental expense for the year.
(3) Net earnings from continuing operations before income taxes for 1995
includes the effect of $165.5 million of restructuring and asset impairment
charges and $49.4 million of non-recurring operating charges.
(4) Net earnings from continuing operations before income taxes for 1996
includes the effect of the $121.4 million gain on sale of securities and
$12.8 million of non-recurring operating charges.
(5) Net earnings from continuing operations before income taxes for 1997
includes the effect of $486.7 million of merger-related charges and $31.0
million of restructuring charges.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RECENT DEVELOPMENT-PENDING AGREEMENT
TO ACQUIRE ARBOR DRUGS, INC.
On February 8, 1998, CVS Corporation ("CVS") signed a definitive merger
agreement to acquire Arbor Drugs, Inc. ("Arbor") in a stock-for-stock merger
valued at approximately $1.48 billion.
The transaction would establish the combined enterprise as the nation's top
chain drug retailer based on store count and prescriptions dispensed. The
combined company is expected to have revenues of approximately $15 billion in
1998 and approximately 4,100 stores in 25 states and the District of Columbia,
and is expected to dispense approximately 12% of the retail prescriptions in the
United States.
Under the terms of the agreement, which was unanimously approved by the Boards
of Directors of both companies, CVS would acquire Arbor in an exchange of stock
that is expected to qualify as a pooling of interests transaction, tax free to
Arbor shareholders. The exchange ratio will be calculated by dividing an Arbor
common stock price of $23 by an average closing price of CVS common stock to be
determined over a specified period prior to the Arbor shareholder meeting. For
each share of Arbor common stock they own, Arbor shareholders will receive not
less than 0.3182 shares of CVS common stock and not more than 0.3660 shares of
CVS common stock.
The transaction is subject to approval by the shareholders of Arbor, expiration
of the applicable Hart-Scott-Rodino waiting period and other customary closing
conditions. Subject to satisfying applicable closing conditions, it is expected
that the transaction will be completed by March 31, 1998.
CVS/REVCO MERGER
On May 29, 1997, CVS completed a merger with Revco D.S., Inc. ("Revco"),
hereafter collectively referred to as the Company, pursuant to which
approximately 60.3 million shares of CVS common stock were issued in exchange
for all of the outstanding common stock of Revco (the "Merger"). Each
outstanding share of Revco common stock was exchanged for 0.8842 of a share of
CVS common stock. In addition, outstanding Revco employee stock options were
converted at the same exchange ratio into options to purchase approximately 3.3
million shares of CVS common stock.
Subsequent to the Merger, and pursuant to a consent decree with the Federal
Trade Commission entered into in connection with the Merger, the Company
divested 120 Revco stores, primarily in Richmond and the Tidewater area of
Virginia.
ACCOUNTING TREATMENT FOR THE
CVS/REVCO MERGER
The Merger, which constituted a tax-free reorganization, has been accounted for
as a pooling of interests under Accounting Principles Board ("APB") Opinion No.
16, "Accounting For Business Combinations." Accordingly, all prior period
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of Revco as if it had
always been part of CVS.
Prior to the Merger, Revco's fiscal year ended on the Saturday closest to May
31. In recording the business combination, Revco's consolidated financial
statements for the fiscal years ended June 1, 1996 and June 3, 1995 have been
restated to reflect a December 31 year-end, to conform with CVS' fiscal
year-end.
Revco's cost of sales and inventories have been restated from the last-in,
first-out method to the first-in, first-out method in order to conform to CVS'
accounting method for inventories. The impact of the restatement was to increase
earnings from continuing operations by $13.5 million in 1996 and $11.9 million
in 1995.
There were no material transactions between CVS and Revco prior to the Merger.
Certain reclassifications have been made to Revco's historical consolidated
financial statements to conform to CVS' presentation.
In accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," the
Company recorded a charge to operating expenses of $411.7 million in the second
quarter of 1997 for direct and other merger-related costs pertaining to the
merger transaction and certain restructuring activities (the "CVS/Revco
Restructuring Charge").
Following is a summary of the significant components of the CVS/Revco
Restructuring Charge:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CVS/REVCO
RESTRUCTURING UTILIZED IN BALANCE AT
IN MILLIONS CHARGE 1997 12/31/97
- ------------------ -------------- ----------- -----------------
<S> <C> <C> <C>
Merger transaction costs $ 35.0 $ 32.1 $ 2.9
Restructuring costs:
Employee severance 89.8 37.4 52.4
Exit costs 286.9 126.1 160.8
- --------------------------------------------------------------------------------
$411.7 $195.6 $216.1
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
Merger transaction costs primarily include fees for investment bankers,
attorneys, accountants, financial printing and other related charges.
Restructuring activities primarily relate to the consolidation of administrative
functions. These actions resulted in the reduction of approximately 1,000
employees, primarily in Revco's Twinsburg, Ohio headquarters, and will include
the consolidation and closure of certain facilities. Exit costs primarily relate
to activities such as the cancellation of lease agreements, closing of certain
facilities and the write-down of unutilized fixed assets.
Asset write-offs included in the above charge totaled $53.7 million. The balance
of the charge, $358.0 million, will require cash outlays of which $164.8 million
had been incurred as of December 31, 1997. The remaining balance, $193.2
million, which primarily includes non-cancelable operating lease commitments and
severance, is expected to be incurred in 1998 and beyond.
The Company also recorded a $75 million charge to cost of goods sold in the
second quarter of 1997 to reflect markdowns on non-compatible Revco merchandise.
See Note 1 to the consolidated financial statements for further information
about the CVS/Revco Merger.
REVCO INTEGRATION UPDATE
We are pleased to report that the integration of Revco is proceeding according
to expectations. Specifically:
- We have completed the conversion of all of Revco's back- end systems to CVS'
back-end systems, enabling all merchandising and purchasing decisions to be
made from CVS' headquarters.
- We have completed the conversion of all of Revco's store systems, both
point-of-sale and pharmacy, to CVS' store systems.
- We have remodeled approximately 700 Revco stores to "look and feel" like a
CVS store. We expect to have the remaining Revco stores remodeled before the
end of 1998.
- With the exception of cosmetics, we have converted the inventory in all
Revco stores to the CVS merchandise mix. We expect to complete the
conversion of cosmetics in the remodeled Revco stores during the first half
of 1998, following the receipt of tailored cosmetics fixtures from vendors.
We expect to complete the remaining Revco stores as they are remodeled
during 1998.
- The former Revco headquarters in Twinsburg, Ohio has been reduced to
approximately 125 employees. By March 1998, the facility will be essentially
closed.
- We achieved the anticipated cost savings of $40 million in 1997 and believe
we are on track to achieve annual cost savings of $100 million, beginning in
1998. The achievement of future cost savings is subject to the uncertainties
discussed in the "Cautionary Statement Concerning Forward Looking
Statements" section below.
ACQUISITION OF BIG B, INC.
In November 1996, the Company completed a cash tender offer (the "Offer") for
the common stock of Big B, Inc. ("Big B") resulting in the Company owning
approximately 85% of the Big B common stock. In December 1996, the Company
completed a second step acquisition in which all of the remaining Big B
shareholders received the same cash price paid in the Offer. The aggregate
transaction value, including the assumption of $49.3 million of Big B debt, was
$423.2 million.
The acquisition of Big B was accounted for as a purchase business combination
under APB Opinion No. 16. The purchase price was allocated to assets acquired
and liabilities assumed based on estimated fair values at the date of
acquisition. This resulted in an excess of purchase price over net assets
acquired ("Goodwill") of approximately $249 million, which is being amortized on
a straight-line basis over 40 years. Big B's results of operations have been
consolidated with the Company's results of operations beginning November 16,
1996.
See Note 5 to the consolidated financial statements for further information
about the Big B acquisition.
2
<PAGE>
CVS STRATEGIC RESTRUCTURING PROGRAM
In November 1997, the Company completed the final phase of its comprehensive
strategic restructuring plan, first announced in October 1995 and subsequently
refined in May 1996 and June 1997. The restructuring plan included, among other
things:
- The sale of four operating businesses (completed during 1995 and 1996).
- The spin-off of Footstar, Inc. ("Footstar") (completed in October 1996).
- The initial public offering of 67.5% of the shares of common stock of Linens
`n Things, Inc. (completed in December 1996).
- The sale of Bob's Stores (completed in November 1997).
- The elimination of certain corporate overhead costs (completed during 1995
and 1996).
In June 1997, the Company sold its remaining 32.5% ownership interest in Linens
`n Things, Inc.
The CVS Strategic Restructuring Program was completed without significant
changes to the Board approved plan. As part of completing this program, the
Company recorded, as a component of discontinued operations, a pre-tax charge of
approximately $35 million during the second quarter of 1997 to finalize certain
liabilities accrued for in the 1996 Restructuring Charge (defined in the "1997
versus 1996" section below).
See Note 3 to the consolidated financial statements for further information
about the CVS Strategic Restructuring Program.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements as of December 31, 1997 and 1996 and for each
of the years in the three-year period ended December 31, 1997.
As discussed above, the CVS/Revco Merger has been accounted for as a pooling of
interests under APB Opinion No. 16. Accordingly, all prior period financial
statements presented have been restated to include the combined results of
operations, financial position and cash flows of Revco as if it had always been
part of CVS.
The results of operations of the Company's former footwear, apparel and toys and
home furnishings segments have been classified as discontinued operations in the
accompanying consolidated statements of operations for all periods presented.
See the "CVS Strategic Restructuring Program" section above and Note 3 to the
consolidated financial statements for further information. The following
discussion, therefore, focuses primarily on continuing operations.
1997 VERSUS 1996
NET SALES for 1997 increased $1.8 billion or 16.4% to $12.7 billion, compared to
$10.9 billion in 1996. Same store sales rose 9.8%, with pharmacy same store
sales increasing 16.7%. Pharmacy sales were 54% of total sales in 1997, compared
to 51% of total sales in 1996.
The growth in front store sales was primarily driven by increases in categories
such as greeting cards, film and photofinishing, beauty and cosmetics,
convenience foods, private label and seasonal merchandise. Growth in pharmacy
sales was primarily driven by (i) increased penetration into managed care
markets, (ii) the purchase of prescription files from independent pharmacies and
(iii) favorable trends, including an aging American population, greater
responsibility being borne by Americans for their healthcare, an increasing
demand for retail formats that provide easy access and convenience, discovery of
new and better drug therapies, and the need for cost effective healthcare
solutions (collectively, the "Pharmacy Sales Factors"). Both front store and
pharmacy sales were positively impacted by the Big B acquisition effective
November 16, 1996. Excluding the positive impact of the Big B acquisition, net
sales increased 11.1% in 1997, compared to 1996.
3
<PAGE>
GROSS MARGIN for 1997 increased $387.6 million or 12.7% to $3.4 billion,
compared to $3.1 billion in 1996. During the second quarter of 1997, the Company
recorded a charge of $75.0 million to cost of goods sold to reflect markdowns on
non-compatible Revco merchandise (the "Revco Inventory Markdown"). Excluding the
effect of the Revco Inventory Markdown, gross margin increased $462.6 million or
15.2% to $3.5 billion.
Gross margin as a percentage of net sales for 1997 was 27.0%, compared to 27.9%
of net sales in 1996. Excluding the effect of the Revco Inventory Markdown,
gross margin as a percentage of net sales was 27.6% for 1997. The decline in
comparable gross margin as a percentage of net sales was primarily due to the
continued increase in lower gross margin third party prescription sales and the
increase in pharmacy sales as a percentage of total sales (collectively, the
"Pharmacy Gross Margin Factors").
In recent years, the Company has experienced a reduction in pharmacy gross
margin due to the efforts of managed care organizations and other third party
payors to reduce prescription drug costs. To address this trend, in certain
circumstances, the Company has declined to participate in certain third party
programs that failed to satisfy minimum profitability standards. In the event
this trend continues and the Company decides to decline participation in
additional third party programs and/or terminate programs that fall below
minimum profitability standards, the Company may be unable to sustain its
current rate of sales growth.
TOTAL OPERATING EXPENSES for 1997 were $3.2 billion or 25.4% of net sales,
compared to $2.5 billion or 22.9% of net sales in 1996. In order to properly
evaluate the Company's total operating expenses in these periods, it is
important to note the following non-recurring charges:
- During the second quarter of 1997, the Company recorded the CVS/Revco
Restructuring Charge. For further information about this charge, see the
"Accounting Treatment For The CVS/Revco Merger" section above.
- During the first quarter of 1997, the Company recorded a $31.0 million
charge for certain non-capitalizable costs associated with the restructuring
of Big B, which the Company acquired in 1996 (the "Big B Restructuring
Charge"). The significant components of this charge included: $5.3 million
for store, distribution and system conversion costs, $18.7 million for store
closing costs and $7.0 million for duplicate headquarters and administration
costs. In accordance with EITF Issue No. 94-3, this charge includes accrued
liabilities related to certain exit plans for identified stores and
duplicate corporate facilities, such as the cancellation of lease agreements
and the write-down of unutilized fixed assets. These exit plans do not
benefit the future activities of the retained stores or corporate
facilities.
- During the second quarter of 1996, the Company recorded a $12.8 million
charge upon Rite Aid Corporation's announcement that it had withdrawn its
tender offer to acquire Revco (the "Rite Aid Charge").
Excluding the CVS/Revco Restructuring Charge and the Big B Restructuring Charge
in 1997 and the Rite Aid Charge in 1996, comparable operating expenses for 1997
were $2.8 billion or 22.0% of net sales, compared to $2.5 billion or 22.8% of
net sales in 1996. The improvement in comparable operating expenses as a
percentage of net sales was primarily due to the benefits derived from: (i)
sales in the Company's existing store base growing at a faster rate than
operating costs, (ii) the CVS Strategic Restructuring Program, (iii) the
consolidation of CVS' and Revco's administrative functions, (iv) store operating
improvements and (v) key technology investments such as the Company's RX 2000
Pharmacy System, CVS Rapid Refill System, Pharmacy Data Warehouse,
Point-of-Sale System, Retail Data Warehouse and Field Management System.
OPERATING PROFIT for 1997 decreased $341.0 million to $199.8 million, compared
to $540.8 million in 1996. Excluding the effect of the Revco Inventory Markdown,
the CVS/Revco Restructuring Charge and the Big B Restructuring Charge in 1997
and the Rite Aid Charge in 1996 (collectively, the "Noted Charges"), comparable
operating profit increased $163.9 million or 29.6% to $717.5 million in 1997,
compared to $553.6 million in 1996. Comparable operating profit as a percentage
of net sales was 5.6% for 1997, compared to 5.1% of net sales in 1996.
OTHER (EXPENSE) INCOME, NET for 1997 amounted to an expense of $44.8 million,
compared to income of $51.3 in 1996. The decrease in 1997 was primarily due to
the $121.4 million gain that was realized during 1996 upon the sale of certain
equity securities that were received as part of the proceeds from the sale of
Marshalls to The TJX Companies, Inc. (the "TJX Gain"). The effect of the TJX
Gain in 1996 was offset, in part, by a $30.9 million decrease in net interest
expense in 1997. The decrease in net interest expense was primarily due to lower
average borrowing levels that resulted primarily from the Revco Debt Retirement
(defined in the "Revco Debt Retirement" section below).
4
<PAGE>
EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM for 1997 decreased
$303.5 million to $37.3 million or $0.14 per diluted share, compared to $340.8
million or $1.92 per diluted share in 1996. Excluding the effect of the Noted
Charges and the TJX Gain, comparable earnings from continuing operations before
extraordinary item increased $104.8 million or 38.1% to $380.1 million or $2.12
per diluted share in 1997, compared to $275.2 million or $1.55 per diluted share
in 1996.
DISCONTINUED OPERATIONS--During the second quarter of 1997, the Company sold its
remaining investment in Linens `n Things, Inc. for total proceeds of
approximately $147 million, which resulted in a pre-tax gain of approximately
$65 million. This gain has been reflected in discontinued operations. In
conjunction with recording this gain, the Company recorded a pre-tax charge of
approximately $35 million in discontinued operations to finalize certain
liabilities accrued for as part of the CVS Strategic Restructuring Program.
During the second quarter of 1996, the Company recorded, as a component of
discontinued operations, a pre-tax charge of $235.0 million (the "1996
Restructuring Charge") after receiving approval from its Board of Directors to
implement: (i) a formal plan to separate Linens `n Things and Bob's Stores from
the Company and (ii) a formal plan to convert 80-100 of Thom McAn's stores to
the Footaction store format and to sell or close the remaining Thom McAn stores,
and thereby exit the Thom McAn business by mid-1997. See the "CVS Strategic
Restructuring Program" section above and Note 3 to the consolidated financial
statements for further information about the CVS Strategic Restructuring
Program.
EXTRAORDINARY ITEM represents a $17.1 million after-tax charge that was recorded
in the second quarter of 1997 as a result of the Revco Debt Retirement (defined
in the "Revco Debt Retirement" section below). This charge includes early
retirement premiums and the write-off of unamortized finance costs. For further
discussion, see the "Revco Debt Retirement" section below.
NET EARNINGS for 1997 were $37.7 million or $0.14 per diluted share, compared to
$176.6 million or $0.98 per diluted share, in 1996.
1996 VERSUS 1995
NET SALES for 1996 increased $1.2 billion or 12.1% to $10.9 billion, compared to
$9.8 billion in 1995. Same store sales rose 8.7%, with pharmacy same store sales
increasing 13.3%. Pharmacy sales were 51% of total sales in both 1996 and 1995.
The growth in front store sales was primarily driven by increases in categories
such as greeting cards, film and photofinishing, beauty and cosmetics,
convenience foods, private label and seasonal merchandise. Growth in pharmacy
sales was primarily driven by the Pharmacy Sales Factors defined in the "1997
versus 1996" section above.
GROSS MARGIN for 1996 increased $305.2 million or 11.1% to $3.1 billion,
compared to $2.7 billion in 1995.
Gross margin as a percentage of net sales for 1996 was 27.9%, compared to 28.1%
of net sales in 1995. The decline in 1996 was primarily due to the Pharmacy
Gross Margin Factors defined in the "1997 versus 1996" section above.
TOTAL OPERATING EXPENSES for 1996 were $2.5 billion or 22.9% of net sales,
compared to $2.5 billion or 25.8% of net sales in 1995. In order to properly
evaluate the Company's total operating expenses in these periods, it is
important to note the following non-recurring charges:
- During the second quarter of 1996, the Company recorded the $12.8 million
Rite Aid Charge.
- During the fourth quarter of 1995, the Company recorded a pre-tax charge of
$872.0 million when its Board of Directors approved the CVS Strategic
Restructuring Program (the "1995 Restructuring Charge"). $160.6 million of
this charge pertained to continuing operations. The amount recorded in
continuing operations primarily included costs associated with (i) exiting
certain geographic markets, (ii) closing duplicate warehouse facilities and
(iii) closing the Company's corporate headquarters in Rye, New York. These
costs primarily included asset write-offs, closed store and warehouse lease
liabilities and employee severance. The balance of the charge, $711.4
million, was reflected as a component of discontinued operations. See the
"CVS Strategic Restructuring Program" section above and Note 3 to the
consolidated financial statements for further information about the CVS
Strategic Restructuring Program.
- During the fourth quarter of 1995, the Company changed its policy from
capitalizing internally developed software costs to expensing the costs as
incurred and recorded a pre-tax charge of $74.5 million (the "Accounting
Change"), $37.8 million of which pertained to continuing operations. The
effect of this change in accounting principle has been treated as a change
in accounting principle that is inseparable from the effect of the change in
accounting estimate. See the "Accounting Changes" section below and Note 2
to the consolidated financial statements for further information about this
charge.
5
<PAGE>
During the fourth quarter of 1995, the Company recorded, as a component of
operating expenses, the following non-recurring charges: (i) $11.6 million
related to outsourcing certain technology functions and retaining certain
employees until their respective job functions were transitioned, and (ii)
$5.0 million related to the write-down of certain fixed and intangible
assets as a result of the Company's early adoption of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
(collectively, the "Special Charges"). See the "Accounting Changes" section
below and Note 2 to the consolidated financial statements for further
information about these charges.
Excluding the Rite Aid Charge in 1996 and the 1995 Restructuring Charge, the
Accounting Change and the Special Charges in 1995, comparable operating expenses
for 1996 were $2.5 billion or 22.8% of net sales, compared to $2.3 billion or
23.6% of net sales in 1995. The improvement in comparable operating expenses as
a percentage of net sales was primarily due to the benefits derived from: (i)
sales in the Company's existing store base growing at a faster rate than
operating costs, (ii) the CVS Strategic Restructuring Program, (iii) store
operating improvements and (iv) key technology investments.
OPERATING PROFIT for 1996 increased $310.1 million to $540.8 million, compared
to $230.7 million in 1995. Excluding the Rite Aid Charge in 1996 and the 1995
Restructuring Charge, the Accounting Change and the Special Charges in 1995,
comparable operating profit increased $107.9 million or 24.2% to $553.6 million
in 1996, compared to $445.7 million in 1995. Comparable operating profit as a
percentage of net sales was 5.1% for 1996, compared to 4.6% of net sales in
1995.
OTHER (EXPENSE) INCOME, NET for 1996 amounted to income of $51.3 million,
compared to an expense of $114.5 million in 1995. This increase was primarily
due to the TJX Gain in 1996. In addition, net interest expense decreased $38.8
million in 1996 to $75.7 million, compared to $114.5 million in 1995. The
decrease in net interest expense was primarily due to lower average borrowing
levels.
EARNINGS FROM CONTINUING OPERATIONS for 1996 increased $283.0 million to $340.8
million, compared to $57.8 million in 1995. Excluding the Rite Aid Charge and
the TJX Gain in 1996 and the 1995 Restructuring Charge, the Accounting Change
and the Special Charges in 1995, comparable earnings from continuing operations
increased $90.5 million or 49.0% to $275.2 million or $1.55 per diluted share in
1996, compared to $184.7 million or $1.02 per diluted share in 1995.
DISCONTINUED OPERATIONS--During the second quarter of 1996, the Company recorded
the 1996 Restructuring Charge. During the fourth quarter of 1995, the Company
recorded the 1995 Restructuring Charge. See the "CVS Strategic Restructuring
Program" section above and Note 3 to the consolidated financial statements for
further information.
NET EARNINGS for 1996 were $176.6 million or $0.98 per diluted share, compared
to a net loss of $572.8 million or $3.59 per diluted share in 1995.
SEASONALITY
The Company's business normally generates higher revenue during the holiday
season in its fourth quarter. In each of the fiscal years ended December 31,
1997, 1996 and 1995, the fourth quarter accounted for approximately 26%, 28% and
28% of the Company's net sales, respectively.
LIQUIDITY & CAPITAL RESOURCES
The following discussion should be read in conjunction with the Company's
consolidated financial statements as of December 31, 1997 and 1996 and for each
of the years in the three-year period ended December 31, 1997.
The Company's financial condition remained strong at the end of 1997.
Management's aggressive focus on working capital combined with the proceeds
received from: (i) the sale of the Company's 32.5% ownership interest in Linens
`n Things, Inc., (ii) the sale of Bob's Stores, (iii) the sale of certain Revco
stores, and (iv) the sale of certain notes receivable that were received as a
portion of the proceeds from the sale of certain businesses, allowed the Company
to reduce its total debt position by approximately $422.4 million during the
year to $779.8 million at December 31, 1997.
6
<PAGE>
REVCO DEBT RETIREMENT
Following the completion of the CVS/Revco Merger:
- On May 30, 1997, the Company repaid $600 million of bank debt outstanding
under the Revco Bank Facility.
- On June 30, 1997, the Company redeemed all $144.9 million aggregate
principal amount of the Revco 10.125% Senior Notes at 105% of the principal
amount plus accrued interest.
- In July 1997, the Company completed a tender offer pursuant to which it
repurchased $120.8 million of the $140.0 million aggregate principal amount
of the Revco 9.125% Senior Notes at an average price of 104.61% of the
principal amount plus accrued interest.
As a result of the above (collectively, the "Revco Debt Retirement"), the
Company recorded an after-tax charge of $17.1 million during the second quarter
of 1997. This charge, which includes early retirement premiums and the write-off
of unamortized finance costs, has been classified as an extraordinary item in
the accompanying consolidated statements of operations.
The Revco Debt Retirement was financed with cash on hand and borrowings under
the Company's commercial paper program. See Note 7 to the consolidated financial
statements for further information about the Revco Debt Retirement.
On January 15, 1998, the Company redeemed the remaining $19.2 million aggregate
principal amount of the Revco 9.125% Senior Notes at 103% of principal plus
accrued interest.
GOODWILL
In connection with certain acquisitions which were accounted for as purchase
business combinations under APB Opinion No. 16, the Company recorded goodwill in
the amount of $776.9 million, representing the excess of the cost of the net
assets acquired over their fair value. Goodwill is being amortized on a
straight-line basis generally over periods of 40 years. At December 31, 1997,
the unamortized portion of goodwill totaled $711.3 million.
Although goodwill amortization has no impact on the Company's cash flows, the
impact on annual earnings is approximately $19.4 million. This amount is
included in depreciation and amortization.
The Company evaluates goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. In
completing its evaluation, the Company compares estimated future cash flows to
the carrying amount of the goodwill. If the carrying amount of the goodwill
exceeds the expected future cash flows, the Company considers the goodwill to be
impaired and records an impairment loss. Based on the Company's analysis of
future cash flows, management believes that goodwill is not presently impaired.
SOURCES OF LIQUIDITY
The Company has three primary sources of liquidity: (i) cash provided by
operations, (ii) commercial paper and (iii) uncommitted lines of credit.
The Company issues commercial paper to finance, in part, its seasonal inventory
requirements and capital expenditures. The commercial paper program is supported
by a $670 million, five year unsecured revolving credit facility which expires
on May 30, 2002 (the "Credit Facility"). The Credit Facility contains customary
financial and operating covenants. Management believes that the restrictions
contained in these covenants do not materially affect the Company's financial
flexibility.
The Company can also obtain up to $220 million of short-term financing through
various uncommitted lines of credit.
Management believes that the Company's cash on hand and cash provided by
operations, together with its ability to obtain additional short-term and
long-term financing, will be sufficient to cover its working capital needs,
capital expenditures, debt service requirements and future cash outlays
associated with the CVS/Revco Merger and the acquisition of Arbor.
7
<PAGE>
YEAR 2000
Since 1995, the Company has been actively addressing the nature and impact of
issues presented by the Year 2000. Accordingly, management expects to identify
and complete all modifications required to support the Year 2000 in a timely
manner and believes that the cost of such modifications will not have a material
impact on the Company's results of operations, liquidity or capital resources.
The Company has also communicated with its key vendors and suppliers to identify
the nature and potential impact of issues presented by the Year 2000 on the
businesses of such vendors and suppliers. Management is not presently aware of
any vendor or supplier-related issue presented by the Year 2000 that could have
a material impact on the Company.
CAPITAL EXPENDITURES
Capital expenditures totaled $312.1 million, $297.5 million and $528.9 million
in 1997, 1996 and 1995, respectively. These expenditures were primarily for: (i)
new stores, (ii) improvements to existing stores, (iii) store equipment, (iv)
information systems, (v) distribution and office facilities and (vi) remodeling
completed in connection with the Revco integration.
During 1997, the Company opened 287 new stores (including relocations) and
expects to open approximately 300 new stores (including relocations) in 1998.
Relocations involve moving existing in-line shopping center stores to larger
freestanding locations. Historically, relocating stores to more convenient
locations and larger sizes has generated significant improvements in customer
count and revenues, driven largely by increased sales of higher margin front
store merchandise. Management believes that relocations offer a significant
opportunity for future growth as less than 20% of the Company's existing stores
are freestanding. However, it is unknown at this time whether such relocations
in existing or new markets served by the Company will realize the same results
as those historically achieved.
REVISED DIVIDEND
On January 10, 1996, the Board of Directors approved a reduction in the
Company's quarterly dividend from $0.38 per common share to $0.11 per common
share (the "Revised Dividend"). Management believes that the Revised Dividend is
consistent with chain drug industry practice and the Company's anticipated
capital requirements. Future dividends will be at the discretion of the
Company's Board of Directors and subject to future operating performance and
financial condition.
CERTAIN TAX MATTERS
As of December 31, 1997, the Company had federal net operating loss
carryforwards ("NOLs") of approximately $33.9 million expiring in the years 2003
through 2009.
Substantially all of these NOLs are attributable to the time period prior to
Revco's emergence from Chapter 11. As discussed in Note 2 to the consolidated
financial statements, under Fresh Start Reporting, the benefits realized from
these NOLs should reduce Reorganization Goodwill. Accordingly, the tax benefit
of such NOLs utilized during the three years ended December 31, 1997
(approximately $69.4 million, $15.3 million and $18.8 million for 1997, 1996 and
1995, respectively), have not been included in the computation of the Company's
income tax provision, but instead have been reflected as reductions of
Reorganization Goodwill. When realized, the tax benefit of the remaining NOL
carryforward will also reduce Reorganization Goodwill.
ACCOUNTING CHANGES
During the fourth quarter of 1997, the Company was required to retroactively
adopt SFAS No. 128, "Earnings Per Share." This statement requires companies with
complex capital structures to present basic and diluted earnings per common
share in lieu of previously reported primary and fully diluted earnings per
common share. See Notes 2 and 18 to the consolidated financial statements for
further information about SFAS No. 128.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." While SFAS No. 123 established financial accounting
and reporting standards for stock-based employee compensation plans using a fair
value method of accounting, it allows companies to continue to measure
compensation using the intrinsic value method of accounting as prescribed in APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company will
continue to use its present APB Opinion No. 25 accounting treatment for
stock-based compensation. See Notes 2 and 11 to the consolidated financial
statements for further information about SFAS No. 123.
8
<PAGE>
Effective October 1, 1995, the Company early adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" and recorded a pre-tax asset impairment charge of $110.4 million ($5.0
million of which pertained to continuing operations) in connection with the
write-down of certain fixed and intangible assets. The above charge resulted
when the Company began identifying and measuring impairment at a lower level
under SFAS No. 121 than under its previous accounting policy. Under the
Company's previous accounting policy, long lived assets were evaluated in total
for impairment at the operating business level if the operating business was
either incurring operating losses or was expecting to incur operating losses in
the future. Since the expected future cash flows measured at the operating
business level were in excess of the carrying value of the related assets, no
previous impairment losses were recorded.
During the fourth quarter of 1995, the Company changed its policy from
capitalizing internally developed software costs to expensing the costs as
incurred and recorded a charge of $74.5 million ($37.8 million of which
pertained to continuing operations). The effect of the change in accounting
principle has been treated as a change in accounting principle that is
inseparable from the effect of the change in accounting estimate. As a result,
the entire amount has been treated as a change in accounting estimate. The
effect of this charge was to reduce net earnings by $45.8 million or $0.28 per
diluted common share in 1995.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
We have made forward-looking statements in this Annual Report (as well as in
other public filings, press releases and discussions with Company management)
that are subject to risks and uncertainties. Forward-looking statements include
the information concerning future results of operations, sales growth, cost
savings and synergies of the Company following the CVS/Revco Merger and the
Arbor acquisition; the information concerning the ability of the Company to
elevate the performance level of Revco stores following the CVS/Revco Merger;
the information concerning the ability of the Company to continue to achieve
significant sales growth; the information concerning the Company's belief that
it can continue to improve operating performance by relocating existing stores
to freestanding locations; the information concerning the Company's belief that
it can continue to reduce selling, general and administrative expenses as a
percentage of net sales; and the information concerning the ability of the
Company and its key vendors and suppliers to successfully manage issues
presented by the Year 2000; as well as those preceded by, followed by
or that otherwise include the words: "believes," "expects," "anticipates,"
"intends," "estimates" or other similar expressions. For those statements, we
claim the protection of the safe harbor for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995. You should understand
that the following important factors, in addition to those discussed elsewhere
in this Annual Report (including in the notes to the consolidated financial
statements included herein) and in our Annual Report on Form 10-K for the year
ended December 31, 1997, could affect the future results of the Company and
could cause those results to differ materially from those expressed in our
forward-looking statements: materially adverse changes in economic conditions
generally or in the markets served by the Company; future regulatory and
legislative actions affecting the Company and/or the chain-drug industry;
competition from other drugstore chains, from alternative distribution channels
such as supermarkets, membership clubs, other retailers and mail order
companies; and from third party plans; and the continued efforts of health
maintenance organizations, managed care organizations, pharmacy benefit
management companies and other third party payors to reduce prescription drug
costs. The forward-looking statements referred to above are also subject to
uncertainties and assumptions relating to the operations and results of
operations of the Company following the CVS/Revco Merger and the Arbor
acquisition, including: risks relating to the Company's ability to combine the
businesses of three major corporations and maintain current operating
performance levels during the integration period and the challenges inherent in
diverting the Company's management focus and resources from other strategic
opportunities and from operational matters for an extended period of time; the
Company's ability to continue to secure suitable new store locations on
favorable lease terms as it seeks to open new stores and relocate a portion of
its existing store base to free standing locations; the Company's ability to
continue to purchase inventory on favorable terms; the Company's ability to
attract, hire and retain suitable pharmacists and management personnel;
relationships with suppliers; and the impact of inflation.
9
<PAGE>
Management's Responsibility for Financial Reporting
The integrity and objectivity of the financial statements and related financial
information in this report are the responsibility of the management of the
Company. The financial statements have been prepared in conformity with
generally accepted accounting principles and include, when necessary, the best
estimates and judgments of management.
The Company maintains a system of internal controls designed to provide
reasonable assurance, at appropriate cost, that assets are safeguarded,
transactions are executed in accordance with management's authorization, and the
accounting records provide a reliable basis for the preparation of the financial
statements. The system of internal accounting controls is continually reviewed
by management and improved and modified as necessary in response to changing
business conditions and recommendations of the Company's internal auditors and
independent auditors.
KPMG Peat Marwick LLP, independent auditors, are engaged to render an opinion
regarding the fair presentation of the consolidated financial statements of the
Company. Their accompanying report is based upon an audit conducted in
accordance with generally accepted accounting standards and included a review of
the system of internal controls to the extent they considered necessary to
support their opinion.
The Audit Committee of the Board of Directors, consisting solely of outside
directors, meets periodically with management, internal auditors and the
independent auditors to review matters relating to the Company's financial
reporting, the adequacy of internal accounting controls and the scope and
results of audit work. The internal auditors and independent auditors have free
access to the Audit Committee.
/s/ Stanley P. Goldstein
Stanley P. Goldstein
Chairman of the Board and Chief Executive Officer
/s/ Thomas M. Ryan
Thomas M. Ryan
Vice Chairman and Chief Operating Officer
/s/ Charles C. Conaway
Charles C. Conaway
Executive Vice President and Chief Financial Officer
February 9, 1998
Independent
Auditors' Report
KPMG Peat Marwick LLP
Board of Directors and Shareholders of CVS Corporation:
We have audited the accompanying consolidated balance sheets of CVS Corporation
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CVS Corporation and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three year period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Providence, Rhode Island
February 9, 1998
10
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995
- ---------------------------------------------------------------------------------- --------- --------- ---------
Net sales......................................................................... $12,738.2 $10,944.8 $ 9,763.4
Cost of goods sold, buying and warehousing costs.................................. 9,298.5 7,892.7 7,016.5
--------- --------- ---------
Gross margin.................................................................... 3,439.7 3,052.1 2,746.9
Selling, general and administrative expenses...................................... 2,575.4 2,309.7 2,180.3
Depreciation and amortization..................................................... 221.8 188.8 170.4
Merger, restructuring and other non-recurring charges............................. 442.7 12.8 165.5
--------- --------- ---------
Total operating expenses........................................................ 3,239.9 2,511.3 2,516.2
--------- --------- ---------
Operating profit.................................................................. 199.8 540.8 230.7
Gain on sale of securities........................................................ -- 121.4 --
Dividend income................................................................... -- 5.6 --
Interest expense, net............................................................. (44.8) (75.7) (114.5)
--------- --------- ---------
Other (expense) income, net..................................................... (44.8) 51.3 (114.5)
--------- --------- ---------
Earnings from continuing operations before income taxes and extraordinary item.... 155.0 592.1 116.2
Income tax provision.............................................................. (117.7) (251.3) (58.4)
--------- --------- ---------
Earnings from continuing operations before extraordinary item..................... 37.3 340.8 57.8
Discontinued operations:
Loss from operations, net of tax benefit of $31.0 and $171.4 in 1996 and 1995,
respectively.................................................................. -- (54.8) (607.4)
Loss on disposal, net of tax (provision) benefit of $(12.4), $56.2 and $9.9 in
1997, 1996 and 1995, respectively and minority interest of $22.2 and $38.4 in
1996 and 1995, respectively................................................... 17.5 (109.4) (23.2)
--------- --------- ---------
Earnings (loss) from discontinued operations.................................... 17.5 (164.2) (630.6)
--------- --------- ---------
Earnings (loss) before extraordinary item......................................... 54.8 176.6 (572.8)
Extraordinary item, loss related to early retirement of debt, net of income tax
benefit of $11.4.............................................................. (17.1) -- --
Net earnings (loss)............................................................... 37.7 176.6 (572.8)
--------- --------- ---------
Preference dividends, net of tax benefit.......................................... (13.7) (14.5) (17.0)
--------- --------- ---------
Net earnings (loss) available to common shareholders.............................. $ 24.0 $ 162.1 $ (589.8)
--------- --------- ---------
--------- --------- ---------
Basic Earnings (Loss) per Common Share:
Earnings from continuing operations before extraordinary item................... $ 0.14 $ 1.97 $ 0.25
Earnings (loss) from discontinued operations.................................... 0.10 (0.99) (3.85)
Extraordinary item, net of tax benefit.......................................... (0.10) -- --
--------- --------- ---------
Net earnings (loss)............................................................. $ 0.14 $ 0.98 $ (3.60)
--------- --------- ---------
Weighted average common shares outstanding...................................... 169.8 165.3 163.7
--------- --------- ---------
--------- --------- ---------
Diluted Earnings (loss) per Common Share:
Earnings from continuing operations before extraordinary item................... $ 0.14 $ 1.92 $ 0.25
Earnings (loss) from discontinued operations.................................... 0.10 (0.94) (3.84)
Extraordinary item, net of tax benefit.......................................... (0.10) -- --
--------- --------- ---------
Net earnings (loss)............................................................. $ 0.14 $ 0.98 $ (3.59)
--------- --------- ---------
Weighted average common shares outstanding...................................... 173.0 173.2 164.3
--------- --------- ---------
--------- --------- ---------
Dividends per Common Share........................................................ $ 0.44 $ 0.44 $ 1.52
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
IN MILLIONS 1997 1996
- ---------------------------------------------------------------------------------------------- --------- ---------
ASSETS:
Cash and cash equivalents................................................................... $ 168.5 $ 471.8
Investments................................................................................. -- 181.4
Accounts receivable, net.................................................................... 452.4 350.7
Inventories................................................................................. 2,709.5 2,328.2
Other current assets........................................................................ 354.6 196.8
--------- ---------
TOTAL CURRENT ASSETS...................................................................... 3,685.0 3,528.9
Property and equipment, net................................................................. 958.2 965.5
Goodwill, net............................................................................... 711.3 721.7
Deferred charges and other assets........................................................... 174.5 282.8
Reorganization value in excess of amounts allocated to identifiable assets, net............. 107.9 194.8
--------- ---------
TOTAL ASSETS................................................................................ $ 5,636.9 $ 5,693.7
--------- ---------
--------- ---------
LIABILITIES:
Accounts payable............................................................................ $ 1,181.9 $ 1,046.3
Accrued expenses............................................................................ 1,165.7 1,007.1
Short-term borrowings....................................................................... 466.4 --
Other current liabilities................................................................... 41.0 69.4
--------- ---------
TOTAL CURRENT LIABILITIES................................................................. 2,855.0 2,122.8
Long-term debt.............................................................................. 272.6 1,184.3
Other long-term liabilities................................................................. 147.9 190.2
SHAREHOLDERS' EQUITY:
Preference stock............................................................................ 284.6 298.6
Common stock................................................................................ 1.8 1.7
Treasury stock, at cost..................................................................... (262.9) (273.1)
Guaranteed ESOP obligation.................................................................. (292.1) (292.1)
Capital surplus............................................................................. 1,079.0 875.9
Retained earnings........................................................................... 1,551.0 1,587.8
Other....................................................................................... -- (2.4)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY................................................................ 2,361.4 2,196.4
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................................. $ 5,636.9 $ 5,693.7
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
SHARES DOLLARS
------------------- ----------------------------
1997 1996 1995 1997 1996 1995
----- ----- ----- -------- -------- --------
IN MILLIONS
<S> <C> <C> <C> <C> <C> <C>
PREFERENCE STOCK:
Beginning of year......................................... 5.6 6.3 6.4 $ 298.6 $ 334.9 $ 340.9
Conversion to common stock................................ (0.3) (0.7) (0.1) (14.0) (36.3) (6.0)
----- ----- ----- -------- -------- --------
End of year............................................... 5.3 5.6 6.3 284.6 298.6 334.9
----- ----- ----- -------- -------- --------
----- ----- ----- -------- -------- --------
COMMON STOCK:
Beginning of year......................................... 172.2 170.8 170.3 1.7 170.8 170.3
Stock options exercised and awards under stock plans...... 5.4 1.7 0.4 0.1 1.7 0.4
Effect of change in par value............................. -- -- -- -- (170.5) --
Other..................................................... 0.4 (0.3) 0.1 -- (0.3) 0.1
----- ----- ----- -------- -------- --------
End of year............................................... 178.0 172.2 170.8 1.8 1.7 170.8
----- ----- ----- -------- -------- --------
----- ----- ----- -------- -------- --------
TREASURY STOCK:
Beginning of year......................................... (5.8) (6.5) (5.8) (273.1) (304.6) (283.8)
Repurchase of common stock................................ -- -- (0.8) -- -- (26.3)
Conversion of preference stock............................ 0.3 0.7 0.1 12.2 31.6 5.5
Other..................................................... (0.1) -- -- (2.0) (0.1) --
----- ----- ----- -------- -------- --------
End of year............................................... (5.6) (5.8) (6.5) (262.9) (273.1) (304.6)
----- ----- ----- -------- -------- --------
----- ----- ----- -------- -------- --------
GUARANTEED ESOP OBLIGATION:
Beginning of year......................................... (292.1) (309.7) (328.1)
Reduction of guaranteed ESOP obligation................... -- 17.6 18.4
----- ----- ----- -------- -------- --------
End of year............................................... (292.1) (292.1) (309.7)
----- ----- ----- -------- -------- --------
----- ----- ----- -------- -------- --------
CAPITAL SURPLUS:
Beginning of year......................................... 875.9 668.2 656.5
Conversion of preference stock............................ 1.8 4.7 0.5
Stock options exercised and awards under stock plans...... 186.2 41.9 8.3
Effect of change in par value............................. -- 170.5 --
Other..................................................... 15.1 (9.4) 2.9
----- ----- ----- -------- -------- --------
End of year............................................... 1,079.0 875.9 668.2
----- ----- ----- -------- -------- --------
----- ----- ----- -------- -------- --------
RETAINED EARNINGS:
Beginning of year......................................... 1,587.8 1,833.0 2,582.7
Net earnings (loss)....................................... 37.7 176.6 (572.8)
Dividends:
Preference stock, net of tax benefit.................... (13.7) (14.4) (16.9)
Redeemable preferred stock.............................. -- (0.1) (0.1)
Common stock............................................ (60.8) (46.5) (159.9)
Footstar Distribution................................... -- (360.8) --
----- ----- ----- -------- -------- --------
End of year............................................... 1,551.0 1,587.8 1,833.0
----- ----- ----- -------- -------- --------
----- ----- ----- -------- -------- --------
OTHER:
Beginning of year......................................... (2.4) 0.2 (111.4)
Cumulative translation adjustment......................... -- (0.2) 1.6
Unrealized holding gain (loss) on investments, net........ 2.4 (2.4) --
----- ----- ----- -------- -------- --------
End of year............................................... -- (2.4) 0.2
----- ----- ----- -------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.................................. $2,361.4 $2,196.4 $2,392.8
----- ----- ----- -------- -------- --------
----- ----- ----- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
IN MILLIONS
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................................................................... $ 37.7 $ 176.6 $ (572.8)
Adjustments required to reconcile net earnings (loss) to net cash (used in) provided
by operating activities:
Merger, restructuring and other non-recurring charges............................... 486.7 235.0 982.4
Depreciation and amortization....................................................... 226.2 246.2 327.7
Gain on sale of securities.......................................................... (30.0) (121.4) --
Minority interest in net earnings................................................... -- 22.2 38.4
Income (loss) from unconsolidated subsidiary........................................ 0.3 (4.5) --
Deferred income taxes and other non-cash items...................................... (195.1) 115.1 (89.7)
Net operating loss carryforwards utilized........................................... 69.4 15.3 18.8
Extraordinary item, loss on early retirement of debt, net of tax.................... 17.1 -- --
Change in assets and liabilities, excluding acquisitions and dispositions:
(Increase) decrease in accounts receivable, net..................................... (80.6) 4.6 (59.0)
(Increase) in inventories........................................................... (531.0) (233.6) (349.7)
(Increase) in other current assets, deferred charges and other assets............... (66.7) (93.5) (32.9)
Increase in accounts payable........................................................ 21.3 337.9 205.5
(Decrease) increase in accrued expenses............................................. (224.4) (219.9) 54.6
(Decrease) in Federal incomes taxes payable and other liabilities................... (6.1) (16.9) (63.3)
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES..................................... (275.2) 463.1 460.0
--------- --------- ---------
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment................................................... (312.1) (297.5) (528.9)
Proceeds from sale of businesses and other property and equipment..................... 192.7 240.4 423.6
Proceeds from initial and secondary public offerings of Linens 'n Things, Inc......... 147.4 189.4 --
Proceeds from sale of investments..................................................... 162.3 296.4 --
Acquisitions, net of cash............................................................. -- (373.9) (4.8)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES..................................... 190.3 54.8 (110.1)
--------- --------- ---------
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid or payable............................................................. (74.6) (132.3) (240.0)
Additions to (reductions in) short-term borrowings.................................... 466.4 (52.0) (148.0)
Increase (decrease) in book overdrafts................................................ 144.3 (158.2) 74.8
Repurchase of common stock............................................................ -- (11.2) (39.1)
(Reductions in) additions to long-term debt........................................... (911.7) 131.4 21.6
Proceeds from exercise of stock options and other issuances of stock.................. 159.5 45.6 14.0
Other................................................................................. (2.3) (14.6) (8.9)
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES................................................... (218.4) (191.3) (325.6)
--------- --------- ---------
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents.................................... (303.3) 326.6 24.3
Cash and cash equivalents at beginning of year.......................................... 471.8 145.2 120.9
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................................ $ 168.5 $ 471.8 $ 145.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 CVS/REVCO MERGER
On May 29, 1997, CVS Corporation ("CVS") completed a merger with Revco D.S.,
Inc. ("Revco"), hereafter collectively referred to as the Company, by exchanging
60.3 million shares of CVS common stock for all of the outstanding common stock
of Revco (the "Merger"). Each outstanding share of Revco common stock was
exchanged for 0.8842 of a share of CVS common stock. In addition, outstanding
Revco employee stock options were converted at the same exchange ratio into
options to purchase approximately 3.3 million shares of CVS common stock.
The Merger, which constituted a tax-free reorganization, has been accounted
for as a pooling of interests under Accounting Principles Board ("APB") Opinion
No. 16, "Accounting for Business Combinations." Accordingly, all prior period
financial statements presented have been restated to include the combined
results of operations, financial position and cash flows of Revco as if it had
always been part of CVS.
Pursuant to a consent decree with the Federal Trade Commission entered into
in connection with the Merger, the Company divested 120 Revco stores, primarily
in Richmond and the Tidewater area of Virginia.
Prior to the Merger, Revco's fiscal year ended on the Saturday closest to
May 31. In recording the business combination, Revco's consolidated financial
statements for the fiscal years ended June 1, 1996 and June 3, 1995 have been
restated to reflect a December 31 year-end, to conform with CVS' fiscal year-
end.
Revco's cost of sales and inventories have been restated from the last-in,
first-out method to the first-in, first-out method in order to conform to CVS'
accounting method for inventories. The impact of the restatement was to increase
earnings from continuing operations by $13.5 million in 1996 and $11.9 million
in 1995.
There were no material transactions between CVS and Revco prior to the
Merger. Certain reclassifications have been made to Revco's historical
consolidated financial statements to conform to CVS' presentation.
In accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," the
Company recorded a charge to operating expenses of $411.7 million during the
second quarter of 1997 for direct and other merger-related costs pertaining to
the merger transaction and certain restructuring activities (the "CVS/Revco
Restructuring Charge").
Following is a summary of the significant components of the CVS/Revco
Restructuring Charge:
<TABLE>
<CAPTION>
CVS/REVCO
RESTRUCTURING UTILIZED IN BALANCE AT
IN MILLIONS CHARGE 1997 12/31/97
- --------------------------------------------------------------- ------------------- ------------- -------------
<S> <C> <C> <C>
Merger transaction costs....................................... $ 35.0 $ 32.1 $ 2.9
Restructuring costs:
Employee severance........................................... 89.8 37.4 52.4
Exit costs................................................... 286.9 126.1 160.8
------------------- ------------- -------------
$ 411.7 $ 195.6 $ 216.1
------------------- ------------- -------------
------------------- ------------- -------------
</TABLE>
Merger transaction costs primarily include fees for investment bankers,
attorneys, accountants, financial printing and other related charges.
Restructuring activities primarily relate to the consolidation of
administrative functions. These actions resulted in the reduction of
approximately 1,000 employees, primarily in Revco's Twinsburg, Ohio
Headquarters, and will include the consolidation and closure of certain
facilities. Exit costs primarily relate to activities such as the
cancellation of lease agreements, closing of certain facilities and the
write-down of unutilized fixed assets.
Asset write-offs included in the CVS/Revco Restructuring Charge totaled
$53.7 million. The balance of the charge, $358.0 million, will require cash
outlays of which $164.8 million had been incurred as of December 31, 1997. The
remaining balance, $193.2 million, which primarily includes non-cancelable
operating lease commitments and severance, is expected to be incurred in 1998
and beyond.
The Company also recorded a $75 million charge to cost of goods sold during
the second quarter of 1997 to reflect markdowns on non-compatible Revco
merchandise.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of the results of operations for the separate
companies prior to the Merger and the combined amounts presented in the
consolidated financial statements:
<TABLE>
<CAPTION>
THREE MONTHS YEARS ENDED
ENDED DECEMBER 31,
MARCH 29, --------------------
IN MILLIONS 1997 1996 1995
- ---------------------------------------------------------------------- ----------------- ---------- ---------
<S> <C> <C> <C>
NET SALES:
CVS................................................................. $ 1,515.0 $ 5,528.1 $ 4,865.0
Revco............................................................... 1,645.8 5,416.7 4,898.4
-------- ---------- ---------
$ 3,160.8 $ 10,944.8 $ 9,763.4
-------- ---------- ---------
-------- ---------- ---------
Earnings (loss) from continuing operations:
CVS................................................................. $ 58.4 $ 239.6 $(26.5)
Revco............................................................... 24.2 101.2 84.3
-------- ---------- ---------
$ 82.6 $ 340.8 $ 57.8
-------- ---------- ---------
-------- ---------- ---------
</TABLE>
2 SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--At December 31, 1997, the Company operated 3,888
retail drugstores in 24 Northeast, Mid-Atlantic, Southeast and Midwest states
and the District of Columbia. CVS offers customers convenience, selection, and
superior customer service as well as comprehensive prescription and pharmacy
services.
BASIS OF PRESENTATION--The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany balances and transactions have been eliminated.
As a result of the CVS Strategic Restructuring Program, the results of
operations of the former (i) footwear segment (which included the Meldisco,
Footaction and Thom McAn businesses), (ii) apparel segment (which included the
Marshalls, Wilsons, and Bob's Stores businesses) and (iii) toys and home
furnishings segment (which included the Kay-Bee Toys, This End Up and Linens 'n
Things businesses) have been classified as discontinued operations in the
accompanying consolidated statements of operations for all periods presented.
See Note 3 for further information about the CVS Strategic Restructuring
Program.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents consist of cash and
temporary investments with maturities of three months or less when purchased.
INVESTMENTS--Investments, which consist of available-for-sale securities,
are recorded at fair value. Unrealized holding gains and losses, net of related
tax effects, are reported as a separate component of shareholders' equity until
realized.
FINANCIAL INSTRUMENTS--The Company's financial instruments include cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses and
commercial paper. Due to the short-term nature of these instruments, the
Company's carrying value approximates fair value. The Company also utilizes
letters of credit to guarantee foreign purchases. At December 31, 1997 and 1996,
approximately $58.2 million and $34.0 million, respectively, was outstanding
under letters of credit.
ACCOUNTS RECEIVABLE--Accounts receivable are stated net of an allowance for
uncollectible accounts of $38.0 million and $36.0 million at December 31, 1997
and 1996, respectively. The balance primarily includes trade receivables due
from managed care organizations, pharmacy benefit management companies,
insurance companies, governmental agencies and vendors.
INVENTORIES--Inventories are stated at the lower of cost or market using the
first-in, first-out method.
PROPERTY AND EQUIPMENT--Depreciation of property and equipment is computed
on a straight-line basis, generally over the estimated useful lives of the asset
or, when applicable, the term of the lease, whichever is shorter. Estimated
useful lives generally range from 10 to 40 years for buildings and improvements,
3 to 10 years for fixtures and equipment, and 3 to 10 years for leasehold
improvements.
IMPAIRMENT OF LONG-LIVED ASSETS--An impairment loss is recognized whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company primarily groups and evaluates assets at an
individual store level, which is the lowest level at which independent cash
flows can be identified. When evaluating assets for potential impairment, the
Company considers historical performance and, in addition, estimates future
results. If the carrying amount of the related asset exceeds the expected future
cash flows, the Company considers the asset to be impaired and records an
impairment loss.
DEFERRED CHARGES AND OTHER ASSETS--Deferred charges, consisting primarily of
beneficial leasehold costs, are amortized on a straight-line basis, generally
over the remaining life of the leasehold acquired or 15 years, whichever is
shorter. At December 31, 1996, other assets primarily included notes receivable
that were received as a portion of the proceeds from the sale of certain
businesses and deferred financing fees.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL--Goodwill is the excess of the cost of net assets acquired in
purchase business combinations over their fair value. It is amortized on a
straight-line basis generally over periods of 40 years. Accumulated
amortization was $65.6 million and $46.3 million at December 31, 1997 and
1996, respectively. The Company evaluates goodwill for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable. In completing its evaluation, the Company compares estimated
future cash flows to the carrying amount of the goodwill. If the carrying
amount of the goodwill exceeds the expected future cash flows, the Company
considers the goodwill to be impaired and records an impairment loss.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS--In June 1992, Revco and certain of its subsidiaries which filed
petitions for relief, emerged from Chapter 11 of the United States Bankruptcy
Code ("Chapter 11") pursuant to a confirmed plan of reorganization. At that
time, the Company implemented the recommended accounting principles for entities
emerging from Chapter 11 ("Fresh Start Reporting") set forth in the American
Institute of Certified Public Accountants ("AICPA") Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
Revco's reorganization value in excess of amounts allocable to identifiable
assets ("Reorganization Goodwill") is being amortized on a straight-line basis
over 20 years. This amortization is a non-deductible expense for tax purposes.
Revco has net operating loss carryforwards ("NOLs") available to offset
future federal and state taxable income. Substantially all of the NOLs are
attributable to the time period prior to Revco's emergence from Chapter 11.
Under Fresh Start Reporting, any benefits realized from the utilization of these
NOLs should reduce Reorganization Goodwill.
Following is a reconciliation of the original Reorganization Goodwill
recorded by Revco upon emergence from Chapter 11 to the net amount reflected in
the consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Original balance recorded...................................................................... $ 352.1 $ 352.1
Accumulated amortization....................................................................... (98.1) (80.6)
Cumulative NOLs utilized....................................................................... (146.1) (76.7)
--------- ---------
$ 107.9 $ 194.8
--------- ---------
--------- ---------
</TABLE>
MAINTENANCE AND REPAIRS--Maintenance and repair costs are charged directly
to expense as incurred. Major renewals or replacements that substantially extend
the useful life of an asset are capitalized and depreciated.
STORE OPENING AND CLOSING COSTS--New store opening costs are charged
directly to expense when incurred. In the event a store closes before its lease
expires, the remaining lease obligation is fully accrued for in the year of
closing.
INCOME TAXES--Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. The tax benefit for
dividends on unallocated shares of Series One ESOP Convertible Preference Stock
(the "ESOP Preference Stock") is recorded as a credit to retained earnings.
ADVERTISING COSTS--External costs incurred to produce media advertising are
expensed when the advertising takes place.
POSTRETIREMENT BENEFITS--The annual cost of postretirement benefits is
funded in the period incurred and the cost is recognized over an employee's
term of service with the Company. The Company also provides health and life
insurance benefits to certain retired employees who met eligibility
requirements and were grandfathered under former benefit plans which have
since been amended or terminated. The cost of these benefits has been fully
accrued by the Company.
EARNINGS PER COMMON SHARE--Basic earnings per common share is computed by
dividing (i) net earnings, after deducting the ESOP Preference Stock dividends,
net of tax benefits, by (ii) the weighted average number of common shares
outstanding during the year (the "Basic Shares").
Diluted earnings per common share assumes that the ESOP Preference Stock is
converted into common stock. Diluted earnings per common share is computed by
dividing (i) net earnings, after accounting for the difference between the
current dividends on the ESOP Preference Stock and the common stock and after
making adjustments for certain non-discretionary expenses that are based on net
earnings such as incentive bonuses and profit sharing by (ii) Basic Shares plus
the additional shares that would be issued assuming that dilutive stock options
are exercised and the ESOP Preference Stock is converted into common stock. In
1995 and 1997, the assumed conversion of the ESOP Preference Stock would have
increased diluted earnings per common share and, therefore, was not considered.
ACCOUNTING CHANGES--The Company was required to retroactively adopt
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" during the fourth quarter of 1997. This statement requires companies with
complex capital structures to present basic and diluted earnings per common
share in lieu of previously reported primary and
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fully diluted earnings per common share. The statement also requires
additional informational disclosures and makes certain modifications to the
previous calculation method.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." While SFAS No. 123 established financial accounting
and reporting standards for stock-based employee compensation plans using a fair
value method of accounting, it allows companies to continue to measure
compensation using the intrinsic value method of accounting as prescribed in APB
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company will
continue to use its present APB Opinion No. 25 accounting treatment for
stock-based compensation. See Note 11 for further information about SFAS No.
123.
Effective October 1, 1995, the Company early adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" and recorded a pre-tax asset impairment charge of $110.4 million
($5.0 million of which pertained to continuing operations) in connection with
the write-down of certain fixed and intangible assets. The above charge resulted
when the Company began identifying and measuring impairment at a lower level
under SFAS No. 121 than under its previous accounting policy. Under the
Company's previous accounting policy, long lived assets were evaluated in total
for impairment at the operating business level if the operating business was
either incurring operating losses or was expecting to incur operating losses in
the future. Since the expected future cash flows measured at the operating
business level were in excess of the carrying value of the related assets, no
previous impairment losses were recorded.
During the fourth quarter of 1995, the Company changed its policy from
capitalizing internally developed software costs to expensing the costs as
incurred and recorded a charge of $74.5 million ($37.8 million of which
pertained to continuing operations). The effect of the change in accounting
principle has been treated as a change in accounting principle that is
inseparable from the effect of the change in accounting estimate. As a
result, the entire amount has been treated as a change in accounting
estimate. The effect of this charge was to reduce net earnings by $45.8
million or $0.28 per diluted common share in 1995.
RECLASSIFICATIONS--Certain reclassifications have been made to the
consolidated financial statements of prior years to conform to the 1997
presentation.
3 CVS STRATEGIC RESTRUCTURING PROGRAM
THE 1995 PLAN
On October 24, 1995, (the "1995 Measurement Date"), the Board of
Directors approved a comprehensive restructuring plan that was the product of
a strategic review initiated in 1994. The restructuring plan included, among
other things: (i) the continued operation of CVS (which included CVS, and
initially Linens 'n Things and Bob's Stores), (ii) the disposal of Marshalls,
Kay-Bee Toys, Wilsons and This End Up, (iii) the spin-off of Footstar, Inc.
("Footstar"), which included Meldisco, Footaction and Thom McAn, and (iv) the
elimination of certain corporate overhead costs.
In connection with the approval of the 1995 Plan, the Company recorded a
pre-tax charge of $872.0 million in the fourth quarter of 1995 (the "1995
Restructuring Charge") and discontinued the footwear segment in accordance with
APB Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." As a result of the 1996 Plan
discussed below, the apparel segment and toys and home furnishings segment were
also discontinued. Accordingly, the portion of the 1995 Restructuring Charge
that pertains to these segments, $711.4 million, is reflected as a component of
discontinued operations, and the remainder, $160.6 million, is included in
continuing operations. The amount recorded in continuing operations primarily
includes costs associated with: (i) exiting certain geographic markets, (ii)
closing duplicate warehouse facilities and (iii) closing the Company's corporate
headquarters in Rye, New York. These costs primarily included asset write-offs,
closed store and warehouse lease liabilities and employee severance.
Management determined the amount of: (i) asset write-offs by comparing the
carrying value of the assets to be disposed of to the anticipated proceeds, (ii)
closed store and warehouse lease liabilities by calculating the present value of
the future minimum lease payments and (iii) employee severance based on an
employee's compensation level and years of service with the Company. The Company
applied the guidance of EITF Issue No. 94-3 to determine the appropriate
accounting treatment for these charges.
Asset write-offs included in the 1995 Restructuring Charge totaled $659.7
million. The balance of the charge, $212.3 million, will require cash outlays of
which $190.3 million had been incurred as of December 31, 1997. The remaining
cash outlays, which primarily include non-cancelable operating lease
commitments, are expected to be incurred in 1998 and beyond.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THE 1996 PLAN
On May 29, 1996, (the "1996 Measurement Date"), the Board of Directors
approved further refinements to the restructuring plan. The refinements
included (i) a formal plan to separate Linens 'n Things and Bob's Stores from
the Company and (ii) a formal plan to convert 80 to 100 of Thom McAn's stores
to the Footaction store format and to sell or close the remaining Thom McAn
stores, and thereby exit the Thom McAn business by mid-1997.
In connection with the approval of the 1996 Plan, the Company recorded,
as a component of discontinued operations, a pre-tax charge of $235.0 million
during the second quarter of 1996 (the "1996 Restructuring Charge")
substantially all of which related to asset write-offs that will not require
cash outlays. As a result of adopting the plan to separate Linens 'n Things
and Bob's Stores from the Company, the apparel and toys and home furnishings
segments were discontinued in accordance with APB Opinion No. 30.
The asset write-offs of $659.7 million and $235.0 million included in the
1995 Restructuring Charge and 1996 Restructuring Charge, respectively, primarily
relate to the write-down of the businesses to be disposed of to estimated fair
value. The significant judgment included in the above write-offs relates to the
estimation of fair value for each business. These estimates were prepared by
independent third parties.
The CVS Strategic Restructuring Program was completed in 1997 without
significant changes to the Board approved plan. In connection with completing
this program, the Company recorded, as a component of discontinued operations, a
pre-tax charge of approximately $35 million during the second quarter of 1997
(the "1997 Restructuring Charge") to finalize certain liabilities accrued for in
the 1996 Restructuring Charge.
THE DISPOSALS
On November 17, 1995, the Company completed the sale of Marshalls to The
TJX Companies, Inc. for total proceeds of approximately $600 million.
On May 4, 1996, the Company completed the sale of Kay-Bee Toys to
Consolidated Stores Corporation for total proceeds of approximately $285.7
million.
On May 25, 1996, the Company completed the sale of Wilsons to an investor
group led by Wilsons' management for total proceeds of approximately $69.7
million.
On May 31, 1996, the Company completed the sale of This End Up to an
investor group for approximately $18.2 million.
On October 12, 1996, the Company completed the spin-off of Footstar by
distributing 100% of the shares of Footstar common stock held by the Company to
its shareholders of record as of the close of business on October 2, 1996 (the
"Footstar Distribution"). See Note 15 for further information about the Footstar
Distribution.
On December 2, 1996, the Company completed the initial public offering of
67.5% of Linens 'n Things, Inc. for net proceeds of approximately $189.4
million.
On June 4, 1997, the Company sold its remaining 32.5% ownership interest in
Linens 'n Things, Inc. for total proceeds of approximately $147 million.
On November 25, 1997, the Company completed the sale of Bob's Stores to an
investor group for total proceeds of approximately $92 million.
The gains and losses that resulted from the above disposals are reflected in
the "Discontinued Operations" section of the consolidated statements of
operations. The Company has no continuing involvement with the divested
operations.
Following is a summary of the significant components of the charges related
to the CVS Strategic Restructuring Program:
<TABLE>
<CAPTION>
UTILIZED
THROUGH
RESTRUCTURING 12/31/97 BALANCE AT
IN MILLIONS CHARGE(1) (2)(3)(4) 12/31/97(5)
- --------------------------------------------------------------- ------------------ ---------------- -----------
<S> <C> <C> <C>
Loss on sale of businesses..................................... $ 721.8 $ 702.2 $ 19.6
Lease obligations and asset write-offs relating to store,
office and warehouse closings................................ 187.4 117.3 70.1
Contract termination costs and asset write-offs relating to
outsourcing certain technology functions..................... 64.3 64.3 --
Severance and employee benefits................................ 58.6 45.5 13.1
Costs relating to the consolidation of the footwear businesses
and exit from Thom McAn...................................... 104.0 104.0 --
Other.......................................................... 5.9 5.9 --
-------- -------- -----------
$ 1,142.0 $ 1,039.2 $ 102.8
-------- -------- -----------
-------- -------- -----------
</TABLE>
- ------------------------
(1) Includes the 1997 Restructuring Charge, the 1996 Restructuring Charge and
the 1995 Restructuring Charge.
(2) Includes utilization of $190.1 million in 1997, $353.7 million in 1996 and
$495.4 million in 1995.
(3) $104.6 million, $79.6 million and $6.1 million of the amounts utilized in
1997, 1996 and 1995, respectively, required cash outlays.
(4) $80.0 million and $2.4 million of the amount utilized in 1996 represents
reserve balances that were retained by Footstar and Linens 'n Things, Inc.,
respectively.
(5) The Company believes that the reserve balance at December 31, 1997 is
adequate to cover the remaining liabilities associated with the CVS
Strategic Restructuring Program.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4 DISCONTINUED OPERATIONS
Following is a summary of discontinued operations by reporting segment for
the years ended December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net sales:
Footwear..................................................................... $ -- $ 1,391.1 $ 1,827.3
Apparel...................................................................... 348.3 526.4 3,055.7
Toys and Home Furnishings.................................................... -- 900.3 1,768.4
--------- --------- ---------
$ 348.3 $ 2,817.8 $ 6,651.4
--------- --------- ---------
Operating (loss) profit:(1)
Footwear..................................................................... $ -- $ (12.4) $ 47.5
Apparel...................................................................... -- (171.3) (704.0)
Toys and Home Furnishings.................................................... -- (49.7) (115.9)
--------- --------- ---------
$ -- $(233.4) (772.4)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Includes the effect of the charges related to the CVS Strategic
Restructuring Program.
As of December 31, 1997, there were no assets or liabilities of the
discontinued operations reflected in the accompanying consolidated balance
sheet. The December 31, 1996 consolidated balance sheet included total assets of
$141.0 million and total liabilities of $61.0 million, for the apparel segment.
5 ACQUISITION OF BIG B, INC.
On October 27, 1996, the Company and Big B, Inc. ("Big B"), a retail
drugstore chain formerly headquartered in Bessemer, Alabama operating
approximately 400 drugstores in five southern states, signed a definitive merger
agreement whereby the Company would acquire all of the outstanding shares of Big
B common stock at a price of $17.25 per share in cash. On November 15, 1996, the
Company announced that it completed its cash tender offer for Big B's common
stock (the "Offer"), resulting in the Company owning approximately 85% of Big B.
On December 23, 1996, the Company completed a second step acquisition in which
all remaining Big B shareholders received the same cash price paid in the Offer.
The aggregate transaction value, including the assumption of approximately $49.3
million of existing Big B debt, was $423.2 million.
The acquisition of Big B was accounted for as a purchase business
combination under APB Opinion No. 16 using an effective date of November 16,
1996. The purchase price was allocated to assets acquired and liabilities
assumed based on estimated fair values at the date of acquisition. This resulted
in an excess of purchase price over net assets acquired of approximately $249
million, which is being amortized on a straight-line basis over 40 years. Big
B's results of operations have been consolidated with the Company's results of
operations beginning November 16, 1996.
During the first quarter of 1997, the Company recorded a charge to
operating expenses of $31.0 million for certain non-capitalizable costs
associated with the restructuring of Big B. The significant components of the
charge included: (i) $5.3 million for store, distribution and system
conversion costs, (ii) $18.7 million for store closing costs and (iii) $7.0
million for duplicate headquarters and administration costs. In accordance
with the guidance provided in EITF Issue No. 94-3, this charge includes
accrued liabilities related to certain exit plans for identified stores and
duplicate corporate facilities, such as the cancellation of lease agreements
and the write-down of unutilized fixed assets. These exit plans do not
benefit the future activities of the retained stores or corporate facilities.
Asset write-offs included in the above charge totaled $5.1 million. The
balance of the charge, $25.9 million, will require cash outlays, of which $8.9
million had been incurred as of December 31, 1997. The remaining cash outlays,
which primarily include non-cancelable operating lease commitments, are expected
to be incurred in 1998 and beyond.
6 INVESTMENTS
Investments consisted of the following at December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Note receivable................................................................................ $ -- $ 100.0
Investment in Linens 'n Things, Inc............................................................ -- 83.2
Other.......................................................................................... -- 2.0
--------- ---------
-- 185.2
Unrealized holding loss........................................................................ -- (3.8)
--------- ---------
$ -- $ 181.4
--------- ---------
--------- ---------
</TABLE>
The note receivable, which was received as a portion of the proceeds from
the sale of Kay-Bee Toys, was sold during the second quarter of 1997 to an
unrelated third party for its approximate carrying value.
On June 4, 1997, the Company sold its remaining 32.5% ownership interest in
Linens 'n Things, Inc. for total proceeds of approximately $147 million, which
resulted in a pre-tax gain of approximately $65 million. This gain is reflected
in discontinued operations.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 BORROWINGS AND CREDIT AGREEMENTS
Following is a summary of the Company's borrowings at December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ---------------------------------------------- ----------- ---------
<S> <C> <C>
CVS debt:
Commercial paper............................ $450.0 $ --
Lines of credit............................. 16.4 --
Guaranteed ESOP obligation(1)............... 292.1 309.4
Other notes and mortgages payable........... -- 12.2
Revco debt:
Bank facility............................... -- 585.4
9.125% Senior Notes......................... 19.2 140.0
10.125% Senior Notes........................ -- 144.9
Other....................................... 2.1 10.3
----------- ---------
779.8 1,202.2
Less current portion.......................... (507.2) (17.9)
----------- ---------
$272.6 $ 1,184.3
----------- ---------
----------- ---------
</TABLE>
- ------------------------
(1) See Note 13 for further information about the Company's ESOP Plan.
The Company issues commercial paper to finance, in part, its seasonal
inventory requirements and capital expenditures. The commercial paper program is
supported by a $670 million, five year unsecured revolving credit facility which
expires on May 30, 2002 (the "Credit Facility"). The Credit Facility requires
the Company to pay a quarterly facility fee of 0.07%, regardless of usage. The
weighted average interest rate on the commercial paper issued as of December 31,
1997 was 5.9%.
The Company can also obtain up to $220 million of short-term financing
through various uncommitted lines of credit. At December 31, 1997, borrowings
under these lines totaled $16.4 million with a weighted average interest rate of
5.5%.
The Company was not obligated under any formal or informal compensating
balance agreements with respect to the short-term borrowings.
REVCO DEBT RETIREMENT
On May 30, 1997, the Company repaid all $600 million of bank debt
outstanding under the Revco bank facility which was subsequently terminated
(the "Bank Facility Repayment"). On June 30, 1997, the Company redeemed all
$144.9 million aggregate principal amount of its 10.125% Senior Notes (the
"Debt Redemption") at 105% of the principal amount plus accrued interest. In
addition, on June 25, 1997, the Company commenced an offer (the "Debt Tender
Offer") to purchase for cash all $140.0 million aggregate principal amount of
its 9.125% Senior Notes. The Debt Tender Offer expired on July 2, 1997 and
$120.8 million aggregate principal amount was repurchased at an average price
of 104.61% of the principal amount plus accrued interest.
At December 31, 1997, the bid price for the remaining 9.125% Senior Notes
was $103.25. Accordingly, the fair value of the notes was $19.8 million,
compared to their carrying value of $19.2 million.
The Bank Facility Repayment, the Debt Redemption and the Debt Tender Offer
(collectively, the "Revco Debt Retirement") were financed with cash on hand and
borrowings under the Company's commercial paper program.
As a result of the Revco Debt Retirement, the Company recorded an after-tax
charge of $17.1 million during the second quarter of 1997. This charge, which
included early retirement premiums and the write-off of unamortized finance
costs, has been classified as an extraordinary item in the accompanying
consolidated statements of operations.
On January 15, 1998, the Company redeemed the remaining $19.2 million
aggregate principal amount of its 9.125% Senior Notes at 103% of principal plus
accrued interest.
The Company remains party to an interest rate cap agreement entered into to
hedge its interest rate exposure on a portion of the Revco bank facility. The
interest rate cap established a maximum interest rate payable when the variable
rate exceeds certain rates. At December 31, 1997, the total notional principal
amount of this interest rate cap agreement was $29.3 million, having capped
LIBOR rates of 7.00%, terminating through July 31, 2000.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AGGREGATE FUTURE MATURITIES
At December 31, 1997, the aggregate long-term debt maturing during the
next five years was as follows: $21.4 million in 1998, $13.8 million in 1999,
$16.5 million in 2000, $20.8 million in 2001, $200.1 million in 2002 and
thereafter.
Following is a summary of net interest expense for the years ended
December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996 1995
- --------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Interest expense(1).................................................................... $ 57.9 $ 83.2 $ 114.9
Less interest income and capitalized interest.......................................... (13.1) (7.5) (0.4)
--------- --------- ---------
Net interest expense................................................................... $ 44.8 $ 75.7 $ 114.5
--------- --------- ---------
Interest paid.......................................................................... $ 56.9 $ 78.3 $ 112.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) In accordance with the provisions of AICPA Statement of Position 76-3,
"Accounting Practices for Certain Employee Stock Ownership Plans" and
allowable under the transition provisions of AICPA Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans," interest
expense excludes interest related to the guaranteed ESOP note, but includes
interest recognized in connection with the Company's contribution to the
ESOP Plan.
8 CONTINGENCIES
In connection with certain dispositions completed between 1991 and 1997,
the Company continues to guarantee lease obligations for approximately 2,000
former stores. The Company is indemnified for these obligations by the
respective purchasers. Assuming that each respective purchaser became
insolvent, an event which the Company believes to be highly unlikely,
management estimates that it could settle these obligations for approximately
$1.2 billion at December 31, 1997. In the opinion of management, the ultimate
disposition of these guarantees will not have a material adverse effect on
the Company's consolidated financial condition, results of operations or
future cash flows.
The Company is also a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management and the Company's outside
counsel, the ultimate disposition of these lawsuits, exclusive of potential
insurance recoveries, will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or future cash flows.
9 LEASES
The Company and its subsidiaries lease retail stores, warehouse
facilities and office facilities over periods generally ranging from 5 to 20
years and generally has options to renew such terms over periods ranging from
5 to 15 years.
Following is a summary of the Company's net rent expense for operating
leases relating to continuing operations for the years ended December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Minimum rent......................................................................... $ 385.5 $ 316.4 $ 299.4
Contingent rent...................................................................... 58.0 71.7 61.3
--------- --------- ---------
443.5 388.1 360.7
Less sublease income................................................................. (6.3) (10.1) (7.7)
--------- --------- ---------
$ 437.2 $ 378.0 $ 353.0
--------- --------- ---------
--------- --------- ---------
</TABLE>
Following is a summary of the future minimum lease payments under capital
leases, rent payments required under operating leases, and future minimum
sublease income, excluding lease obligations for closed stores, at December 31,
1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
IN MILLIONS LEASES LEASES
- ---------------------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
1998.................................................................................... $ 0.6 $ 352.1
1999.................................................................................... 0.6 323.9
2000.................................................................................... 0.6 295.3
2001.................................................................................... 0.6 268.6
2002.................................................................................... 0.4 230.1
Thereafter.............................................................................. 1.4 1,479.4
------------- -----------
$ 4.2 $ 2,949.4
Less amount representing interest....................................................... (2.4) --
------------- -----------
Present value of minimum lease payments................................................. $ 1.8 --
------------- -----------
Total future minimum sublease income.................................................... $ 0.1 $ 29.4
------------- -----------
------------- -----------
</TABLE>
10 CAPITAL STOCK
The Certificate of Incorporation provides for the authorization of
350,120,619 shares of capital stock of which 300,000,000 shares are common
stock, $0.01 par value per share, 120,619 shares are cumulative preferred
stock, $0.01 par value per share and 50,000,000 shares are preference stock,
$1.00 par value per share.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 STOCK INCENTIVE PLANS
At December 31, 1996, the Company had stock incentive plans that included
the pre-merger plans of Revco. Effective with the Merger, and in accordance
with the terms of the Revco stock incentive plans, each outstanding Revco
stock option was exchanged for 0.8842 options to purchase CVS common stock.
Following is a summary of the Company's stock-based incentive plans as of
December 31, 1997:
1997 INCENTIVE COMPENSATION PLAN
The 1997 Incentive Compensation Plan, (the "1997 ICP") superseded the
1990 Omnibus Stock Incentive Plan, the 1987 Stock Option Plan and the 1973
Stock Option Plan (collectively, the "Preexisting Plans"). Upon approval of
the 1997 ICP, authority to make future grants under the Preexisting Plans was
terminated, although previously granted awards remain outstanding in
accordance with their terms and the terms of the Preexisting Plans. As of
December 31, 1997, the 1997 ICP provided for the granting of up to 9,914,761
shares of common stock to key employees in the form of fixed stock options,
stock appreciation rights ("SARs"), restricted stock and performance-based
awards. All grants under the 1997 ICP are awarded at fair market value on the
date of grant. The right to exercise these awards generally commences between
one and five years from the date of the grant and expires not more than ten
years after the date of the grant, provided that the option holder continues
to be employed by the Company. As of December 31, 1997, there were 9,863,709
shares available for grant under the 1997 ICP.
The 1997 ICP permits the granting of performance-based share awards which
represent the right to receive common stock grants upon the achievement of
certain business performance goals. Compensation expense related to grants under
these provisions is based on the current market price of the Company's common
stock and the extent to which the performance criteria is being met. There were
no performance-based units awarded or shares granted during 1997.
Following is a summary of performance-based share awards for the years ended
December 31:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS 1997 1996 1995
- ----------------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C>
Units awarded.................................................................................. -- -- 32,297
Fair market value of units awarded............................................................. -- -- $ 1.2
Shares granted related to units previously awarded............................................. -- 35,380 60,807
Fair market value of shares granted............................................................ -- $ 1.3 $ 2.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average grant date fair value of performance-based shares
granted in 1996 and 1995 was $37.01 and $35.79, respectively.
The 1997 ICP also permits the granting of up to 1.8 million restricted stock
awards. Restricted stock awards are subject to the achievement of certain
business performance goals and/or future service requirements as determined by
the Compensation Committee. During the restricted period, the stock awards can
not be sold, transferred or encumbered, although they retain all of the rights
of a shareholder.
Following is a summary of restricted stock awards for the years ended
December 31:
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS 1997 1996 1995
- ---------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Shares granted.................................................................... 22,305 316,550 112,773
Fair market value of shares granted............................................... $ 1.0 $ 8.3 $ 4.1
Shares canceled................................................................... -- 63,543 11,452
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average grant date fair value of restricted stock granted in
1997, 1996 and 1995 was $46.04, $26.28 and $32.54, respectively.
THE 1996 DIRECTORS STOCK PLAN
The 1996 Directors Stock Plan (the "1996 DSP") provides for the granting
of up to 173,230 shares of common stock to the Company's non-employee
directors (the "Eligible Directors"). Eligible Directors (i) are entitled to
receive an annual grant of 350 shares of common stock, (ii) are paid one-half
of their annual retainer fee in shares of common stock and (iii) may elect to
receive common stock as compensation for certain other services rendered. In
addition, Eligible Directors may elect to defer compensation payable in
common stock until their service as a director concludes. In this case,
Eligible Directors are entitled to receive dividend equivalent credits on
their deferred shares. The 1996 DSP replaced the Company's 1989 Directors
Stock Option Plan.
In connection with the termination of certain retirement benefits, the 1996
DSP provided each Eligible Director the option to receive the actuarial present
value of these benefits in the form of a common stock grant in lieu of receiving
the previously accrued benefit in pension payments upon retirement. All Eligible
Directors elected to receive the common stock grant and to defer the grant until
their service as a director concludes. The impact of this grant was not material
to the Company's results of operations. At December 31, 1997, there were 140,253
shares available for grant under the 1996 DSP.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of the fixed stock option activity in the 1997 ICP,
the 1996 DSP and the Preexisting Plans:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------ --------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
----------- ----------------- ------------ ------------------- ------------ -------------------
Outstanding at
beginning of
year............... 9,512,126 $ 29.10 10,669,028 $ 29.84 7,238,636 $ 28.23
Granted.............. 1,308,482 46.73 2,773,180 29.33 3,735,552 31.40
Exercised............ (5,317,081) 26.39 (1,514,061) 24.15 (188,876) 14.92
Canceled............. (108,445) 39.97 (2,416,021) 36.32 (116,284) 21.04
----------- ----------------- ------------ ------------------- ------------ -------------------
Outstanding at end of
year............... 5,395,082 $ 36.56 9,512,126 $ 29.10 10,669,028 $ 29.84
----------- ----------------- ------------ ------------------- ------------ -------------------
Options exercisable
at year-end........ 3,256,056 4,759,432 5,344,464
----------- ----------------- ------------ ------------------- ------------ -------------------
----------- ----------------- ------------ ------------------- ------------ -------------------
</TABLE>
Following is a summary of fixed stock options outstanding as of December 31,
1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE
REMAINING
RANGE OF NUMBER YEARS OF WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ---------------------- ------------------------- ----------------------- -------------- -------------------
$9.89 to $25.00 154,756 5.70 $ 18.52 154,756 $ 18.52
25.01 to 35.00 3,222,403 6.23 32.38 2,321,407 32.16
35.01 to 45.00 695,591 3.75 40.67 695,591 40.67
45.01 to 55.00 1,245,792 8.66 45.99 84,302 45.49
Over 55.01 76,540 9.70 58.22 -- --
---------------------- ------------------------- ----------------------- -------------- -------------------
5,395,082 6.54 $ 36.56 3,256,056 $ 33.68
---------------------- ------------------------- ----------------------- -------------- -------------------
---------------------- ------------------------- ----------------------- -------------- -------------------
</TABLE>
The number of shares and the weighted-average exercise prices included in
the above tables have been restated to reflect the effect of the Footstar
Distribution.
Compensation cost recognized in net earnings under the Company's
stock-based compensation plans amounted to $3.5 million in 1997, $3.9 million
in 1996 and $3.3 million in 1995. Had compensation cost been recognized based
on the fair value of options granted consistent with SFAS No. 123, the
Company's net earnings and net earnings per common share for the years ended
December 31, would approximate the pro forma amounts shown below:
<TABLE>
<CAPTION>
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995
- -------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Net earnings (loss):
As reported......................................................................... $ 37.7 $ 176.6 $(572.8)
Pro forma........................................................................... 26.6 169.5 (577.9)
--------- --------- ---------
Basic net earnings (loss) per common share:
As reported......................................................................... $ 0.14 $ 0.98 $ (3.60)
Pro forma........................................................................... 0.08 0.94 (3.63)
--------- --------- ---------
Diluted net earnings (loss) per common share:
As reported......................................................................... $ 0.14 $ 0.98 $ (3.59)
Pro forma........................................................................... 0.07 0.94 (3.62)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The weighted-average grant date fair value of options granted during the
years ended December 31, was $14.57 in 1997, $10.94 in 1996 and $8.14 in 1995
per option, respectively.
Following are the weighted-average assumptions used in the Black-Scholes
Option Pricing Model to estimate, at the date of grant, the weighted average
fair value of options granted during the years ended December 31:
<TABLE>
<CAPTION>
1997 1996(1) 1995(1)
--------- ----------- -----------
<S> <C> <C> <C>
Dividend yield......................................................................... 0.70% 1.07% 1.07%
Expected volatility.................................................................... 22.77% 20.51% 20.51%
Risk-free interest rate................................................................ 5.50% 7.00% 7.00%
Expected life.......................................................................... 5.5 5.0 4.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) In 1996 and 1995, Revco options were valued using a dividend yield of 0.0%,
an expected volatility of 36.0% and an expected life of 7.0 years.
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12 RETIREMENT PLANS
The Company sponsors various retirement programs, including defined benefit
plans and defined contribution plans that cover most full-time employees.
DEFINED BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan (the
"Revco Retirement Income Plan"). The plan covers certain full-time employees
of Revco who are 201/2 years of age with six months of service and who are
not covered by collective bargaining agreements. The Company also has
non-qualified supplemental executive retirement plans ("SERPs") in place for
certain key employees for which it has purchased cost recovery variable life
insurance on the lives of such employees. Amounts payable under the SERPs are
in addition to the benefits payable under other retirement plans.
Benefits paid to retirees are based upon age at retirement, years of
credited service and average compensation during the final five years of
employment. It is the policy of the Company to fund its plans based on actuarial
calculations and the applicable regulations.
The following table sets forth the funded status of the defined benefit
plans administered by the Company and the amounts recognized in the accompanying
consolidated balance sheets as of December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Accumulated benefit obligation:
Vested benefits.............................................................................. $ 216.1 $ 194.4
Nonvested benefits........................................................................... 7.1 8.3
--------- ---------
Accumulated benefit obligation................................................................. 223.2 202.7
Impact of future salary increases.............................................................. 1.4 26.7
--------- ---------
Projected benefit obligation................................................................... 224.6 229.4
Plan assets at fair value...................................................................... 201.5 172.8
--------- ---------
Projected benefit obligation in excess of plan assets.......................................... 23.1 56.6
Unrecognized prior service cost................................................................ (1.6) (5.4)
Unrecognized net gain (loss)................................................................... 15.2 (5.0)
--------- ---------
Accrued pension cost........................................................................... $ 36.7 $ 46.2
--------- ---------
--------- ---------
</TABLE>
Following is a summary of the components of net periodic pension cost for
the defined benefit plans:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Service cost.............................................................................. $ 6.9 $ 9.2 $ 9.1
Interest cost on projected benefit obligation............................................. 17.4 16.8 14.8
Return on plan assets..................................................................... (14.9) (18.2) (18.6)
Net amortization and deferral............................................................. 0.4 6.5 6.6
--------- --------- ---------
Net periodic pension cost................................................................. $ 9.8 $ 14.3 $ 11.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
In connection with the Merger, the Company suspended the Revco Retirement
Income Plan, resulting in a curtailment gain of approximately $6.0 million.
Following is a summary of the assumptions used to measure the actuarial
present value of the projected benefit obligation:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Discount rate....................................................................................... 7.50% 7.75%
Rate of compensation increase....................................................................... 4.50% 4.50%
Expected rate of return on plan assets.............................................................. 9.00% 9.00%
--------- ---------
--------- ---------
</TABLE>
Plan assets consist primarily of mutual funds, common stock and insurance
contracts.
In addition to the above defined benefit plans, and pursuant to various
labor agreements, the Company is required to make contributions to certain
union-administered pension plans which totaled $1.6 million, $1.2 million and
$1.2 million in 1997, 1996 and 1995, respectively. The Company may be liable
for its share of the plans' unfunded liabilities if the plans are terminated.
DEFINED CONTRIBUTION PLANS
The Company sponsors certain defined contribution plans covering
substantially all employees who meet the plan's eligibility requirements. The
Profit Sharing Plan, contains a profit sharing component that makes tax deferred
contributions to each employee based on the Company achieving certain
performance goals. The 401(k) Savings Plan allows employees to make voluntary
contributions up to the maximum limits allowed by Section 401(k) of the Internal
Revenue Code. The Company matches a portion of the employee's contribution under
a predetermined formula based on the employee's contribution level and years of
service. The Company's contributions to these plans totaled $16.2 million, $25.5
million and $24.4 million in 1997, 1996 and 1995, respectively.
The company also sponsors an Employee Stock Ownership Plan. See Note 13 for
further information.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13 EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors a defined contribution Employee Stock Ownership Plan
(the "ESOP") for its full-time employees.
In 1989, the ESOP Trust borrowed $357.5 million through a 20-year loan that
is guaranteed by the Company. The proceeds from the loan were used to purchase
6.7 million shares of Series One ESOP Convertible Preference Stock (the "ESOP
Preference Stock") from the Company. Each share of ESOP Preference Stock is
convertible into 1.157 shares of common stock. The original liquidation value
($53.45) is guaranteed by the Company.
The total number of new shares to be allocated each year is calculated by
multiplying (i) the ratio of each year's debt service payment to total current
and future debt service payments by (ii) the number of unallocated shares of
ESOP Preference Stock in the plan. At December 31, 1997, 5.3 million shares of
ESOP Preference Stock were outstanding, of which 1.3 million shares were
allocated to participants and the remaining 4.0 million shares were held in the
ESOP Trust for future allocations. The fair value of the allocated shares was
approximately $83 million at December 31, 1997. The Company is required to
repurchase at the original liquidation value, for cash or common stock at the
Company's option, the ESOP Preference Stock allocated to participants upon
distribution to the participant. Dividends are cumulative at the stated rate or
the common rate if higher.
Following is a summary of the ESOP for the years ended December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996 1995
- ----------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Dividends paid........................................................................... $ 20.8 $ 21.8 $ 24.3
Cash contributions....................................................................... 22.9 19.3 14.2
Tax benefit of annual dividend........................................................... 8.5 8.8 9.8
Interest costs incurred by ESOP Trust.................................................... 26.4 27.5 28.4
Compensation expense recognized(1)....................................................... 3.5 3.4 6.2
Interest expense recognized(1)........................................................... 10.3 12.0 6.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Amounts include discontinued operations.
The Company's contribution to the ESOP, plus the dividends paid on the ESOP
Preference Stock held by the ESOP Trust, are used to repay the loan principal
and interest. The Company has reflected the guaranteed ESOP obligation as
long-term debt on the consolidated balance sheets. The ESOP obligation is
collateralized by the unallocated shares of ESOP Preference Stock. A
corresponding amount of "Guaranteed ESOP obligation" is recorded as a reduction
of shareholder's equity. The ESOP Preference Stock is not considered when
computing basic earnings per common share, but is considered when computing
diluted earnings per common share.
14 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement health benefits to retirees who meet
certain eligibility requirements. Following is a summary of the net
postretirement benefit cost as of December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................................... $ -- $ 0.4 $ 0.4
Interest cost on projected benefit obligation.............................................. 1.0 2.5 2.9
Net amortization and deferral.............................................................. (0.3) (1.1) (11.4)
--------- --------- ---------
Net postretirement benefit cost............................................................ $ 0.7 $ 1.8 $ (8.1)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Following is a summary of the accrued postretirement benefit cost at
December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Retirees......................................................................................... $ 14.4 $ 15.5
Fully eligible active plan participants.......................................................... -- 0.1
Other active plan participants................................................................... 0.1 0.1
--------- ---------
Total accumulated postretirement benefit obligation.............................................. 14.5 15.7
Unrecognized prior service cost.................................................................. 1.1 1.2
Unrecognized net gain............................................................................ 1.0 1.0
--------- ---------
Accrued postretirement benefit cost.............................................................. $ 16.6 $ 17.9
--------- ---------
--------- ---------
</TABLE>
In 1994, the Company amended various Revco health benefit plans to terminate
benefits for all non-retirees. The amendment resulted in a negative plan change
of $10.1 million which was recorded in 1995.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following are the primary assumptions used to determine the costs and
accumulated postretirement benefit obligation (the "APBO") for the years ended
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Discount rates............................................................................. 7.25% 7.50% 6.90%
Health care cost trend rates:
Initial.................................................................................. 7.00% 9.25% 10.00%
Ultimate................................................................................. 5.00% 5.00% 5.00%
Year in which ultimate trend rate is achieved.............................................. 2003 2005 2005
</TABLE>
A one percent increase in the health care cost trend rate would increase the
APBO by $0.8 million at December 31, 1997 and the annual expense by $0.06
million in 1997.
15 INCOME TAXES
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The Company's income tax (provision) benefit for continuing operations for
the years ended December 31 consisted of the following:
<TABLE>
<CAPTION>
IN MILLIONS FEDERAL STATE TOTAL
- ------------------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
1997:
Current......................................................................... $(162.4) $ (66.4) $(228.8)
Deferred........................................................................ 83.0 28.1 111.1
-------- -------- --------
$ (79.4) $ (38.3) $(117.7)
1996:
Current......................................................................... $(179.3) $ (52.3) $(231.6)
Deferred........................................................................ (16.9) (2.8) (19.7)
-------- -------- --------
$(196.2) $ (55.1) $(251.3)
1995:
Current......................................................................... $(130.7) $ (14.2) $(144.9)
Deferred........................................................................ 84.6 1.9 86.5
-------- -------- --------
$ (46.1) $ (12.3) $ (58.4)
</TABLE>
Following is a reconciliation of the statutory income tax rate to the
Company's effective tax rate for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory income tax rate................................................................... 35.0% 35.0% 35.0%
State income taxes, net of Federal tax benefit.............................................. 6.9 5.7 6.6
Goodwill and other.......................................................................... 1.6 1.7 8.7
--------- --------- ---------
Effective tax rate before merger related costs.............................................. 43.5 42.4 50.3
32.4 -- --
Merger related costs(1)..................................................................... --------- --------- ---------
Effective tax rate.......................................................................... 75.9% 42.4% 50.3%
</TABLE>
- ------------------------
(1) Includes state tax effect.
Income taxes paid (refunded) were $243.8 million, $(49.2) million, and
$116.4 million during the years ended December 31, 1997, 1996 and 1995,
respectively.
Following is a summary of the significant components of the Company's
deferred tax assets and liabilities as of December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ----------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Employee benefits.............................................................................. $ 118.3 $ 81.6
Other assets................................................................................... 252.5 201.8
--------- ---------
Total deferred tax assets...................................................................... $ 370.8 $ 283.4
--------- ---------
Deferred tax liabilities:
Property and equipment....................................................................... $ (20.3) $ (48.9)
Inventories.................................................................................. (20.5) (79.2)
Other liabilities............................................................................ (10.6) (23.1)
---------- ----------
Total deferred tax liability................................................................... (51.4) (151.2)
---------- ----------
Net deferred tax assets........................................................................ $ 319.4 $ 132.2
</TABLE>
Based on historical pre-tax earnings, the Company believes it is more likely
than not that the deferred tax assets will be realized.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1997, the Company had federal net operating loss
carryforwards ("NOLs") of approximately $33.9 million which are attributable to
Revco for periods prior to its emergence from Chapter 11. As previously
discussed in Note 2, under Fresh Start Reporting, the benefits realized from
these NOLs should reduce Reorganization Goodwill. Accordingly, the tax benefit
of such NOLs utilized during the three years ended December 31, 1997
(approximately $69.4 million, $15.3 million and $18.8 million for 1997, 1996 and
1995, respectively), have not been included in the computation of the Company's
income tax provision, but instead have been reflected as reductions of
Reorganization Goodwill.
On October 12, 1996, the Company completed the Footstar Distribution which
is believed to be tax-free to the Company and its shareholders based on a legal
opinion provided by outside counsel. However, since opinions of counsel are not
binding on the Internal Revenue Service or the courts, it could ultimately be
determined that the Footstar Distribution does not qualify as a tax-free
distribution. If such occurred, the Company would be required to recognize a
capital gain for tax purposes equal to the difference between the fair market
value of the shares of Footstar stock distributed and the Company's basis in
such shares. The Company, however, believes the likelihood of the Footstar
Distribution not qualifying as a tax-free distribution to be remote.
16 SUBSEQUENT EVENT (UNAUDITED)
On February 8, 1998, the Company signed a definitive merger agreement to
acquire Arbor Drugs, Inc. ("Arbor") in a stock-for-stock merger valued at
approximately $1.48 billion.
Under the terms of the merger agreement, which was unanimously approved by
the Boards of Directors of both companies, the Company would acquire Arbor in an
exchange of stock that is expected to qualify as a pooling of interests
transaction, tax free to Arbor shareholders. The exchange ratio will be
calculated by dividing an Arbor common stock price of $23 by an average closing
price of the Company's common stock to be determined over a specified period
prior to the Arbor shareholder meeting. For each share of Arbor common stock
they own, Arbor shareholders will receive not less than 0.3182 shares of the
Company's common stock and not more than 0.3660 shares of the Company's common
stock.
The transaction is subject to approval by the shareholders of Arbor,
expiration of the applicable Hart-Scott-Rodino waiting period and other
customary closing conditions. Subject to satisfying applicable closing
conditions, it is expected that the transaction will be completed by March 31,
1998.
17 SUPPLEMENTAL INFORMATION
Following are the components of amounts included in the consolidated balance
sheets as of December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996
- ------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
OTHER CURRENT ASSETS:
Deferred income taxes.................................................................... $ 302.2 $ 154.7
Other.................................................................................... 52.4 42.1
--------- ---------
$ 354.6 $ 196.8
--------- ---------
PROPERTY AND EQUIPMENT:
Land..................................................................................... $ 50.8 $ 72.2
Buildings and improvements............................................................... 206.2 226.9
Fixtures and equipment................................................................... 860.5 787.5
Leasehold improvements................................................................... 395.1 381.7
Capital leases........................................................................... 3.3 3.3
--------- ---------
1,515.9 1,471.6
Accumulated depreciation and amortization.................................................. (557.7) (506.1)
--------- ---------
$ 958.2 $ 965.5
--------- ---------
--------- ---------
ACCRUED EXPENSES:
CVS/Revco Restructuring reserves......................................................... $ 216.1 $ --
CVS Strategic Restructuring Program reserves............................................. 102.8 245.9
Taxes other than Federal income taxes.................................................... 124.7 109.9
Salaries and wages....................................................................... 96.1 131.8
Rent..................................................................................... 76.3 124.9
Other.................................................................................... 549.7 394.6
--------- ---------
$ 1,165.7 $ 1,007.1
--------- ---------
--------- ---------
</TABLE>
Following is a summary of the Company's non-cash financing activities for
the years ended December 31:
<TABLE>
<CAPTION>
IN MILLIONS 1997 1996 1995
- ------------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Fair value of assets acquired........................................................ $ -- $ 423.2 $ 4.8
Cash paid ........................................................................... -- 373.9 4.8
--------- --------- ---------
Liabilities assumed ................................................................ $ -- 49.3 $ --
--------- --------- ---------
Stock or notes received for divisions sold........................................... $ 52.0 $ 172.4 $ 175.0
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 RECONCILIATION OF EARNINGS PER COMMON SHARE
Following is a reconciliation of basic and diluted earnings per common share
from continuing operations before extraordinary item for the years ended
December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------- ----------- ----------- -----------------
PER COMMON
IN MILLIONS, EXCEPT PER SHARE AMOUNTS EARNINGS SHARES SHARE
- ------------------------------------------------------------------------- ----------- ----------- -----------------
<S> <C> <C> <C>
1997:
Basic EPS:
Earnings from continuing operations before extraordinary item......... $37.3 -- --
Preference dividends, net of tax benefit.............................. (13.7) -- --
- ------------------------------------------------------------------------ ----------- ----------- -----------------
Earnings from continuing operations available to common shareholders.. $ 23.6 169.8 $ 0.14
Effect of dilutive securities:(1)
Dilutive stock options.............................................. -- 3.2 --
----------- ----- -----
DILUTED EPS:
Earnings from continuing operations available to common shareholders..... $ 23.6 173.0 $ 0.14
- -------------------------------------------------------------------------- ----------- ----------- -----------------
1996:
Basic EPS:
Earnings from continuing operations before extraordinary item............ $ 340.8 -- --
Preference dividends, net of tax benefit................................. (14.5) -- --
- --------------------------------------------------------------------------- ----------- ----------- -----------------
Earnings from continuing operations available to common shareholders..... $ 326.3 165.3 $ 1.97
Effect of dilutive securities:(1)
Preference dividends, net of tax benefit............................... 14.5 5.9 --
Dilutive earnings adjustments.......................................... (7.5) -- --
Dilutive stock options ................................................ -- 2.0 --
- --------------------------------------------------------------------------- ----------- ----------- -----------------
DILUTED EPS:
Earnings from continuing operations available to common shareholders..... $ 333.3 173.2 $ 1.92
- --------------------------------------------------------------------------- ----------- ----------- -----------------
1995:
Basic EPS:
Earnings from continuing operations before extraordinary item............ $ 57.8 -- --
Preference dividends, net of tax benefit................................. (17.0) -- --
- --------------------------------------------------------------------------- ----------- ----------- -----------------
Earnings from continuing operations available to common shareholders..... $ 40.8 163.7 $ 0.25
Effect of dilutive securities:(1)
Dilutive stock options................................................. -- 0.6 --
- --------------------------------------------------------------------------- ----------- ----------- -----------------
DILUTED EPS:
Earnings from continuing operations available to common shareholders..... $ 40.8 164.3 $ 0.25
- --------------------------------------------------------------------------- ----------- ----------- -----------------
</TABLE>
- ------------------------
(1) See Note 2 for further information about earnings per common share.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19 QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
UNAUDITED; IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ------------------------------------------------ ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales:
1997.......................................... $ 3,160.8 $ 3,160.6 $ 3,080.3 $ 3,336.5
1996.......................................... 2,558.2 2,674.7 2,638.1 3,073.8
Gross margin:
1997.......................................... $ 900.1 $ 806.4 $ 839.5 $ 893.7
1996.......................................... 736.0 755.0 727.0 834.1
Earnings (loss) from continuing operations
before extraordinary item:
1997.......................................... $ 82.6 $(230.8) $ 74.7 $ 110.8
1996.......................................... 72.3 114.2 60.8 93.5
Net earnings (loss):
1997.......................................... $ 82.7 $(230.5) $ 74.7 $ 110.8
1996.......................................... 46.0 (39.3) 79.6 90.3
Earnings (loss) per common share from
continuing operations before extraordinary
item:
1997:
Basic......................................... $ 0.48 $(1.39) $ 0.41 $ 0.62
Diluted....................................... 0.47 (1.39) 0.41 0.61
1996:
Basic......................................... 0.42 0.67 0.35 0.54
Diluted....................................... 0.40 0.66 0.34 0.53
Net earnings (loss) per common share:
1997:
Basic......................................... $ 0.48 $(1.39) $ 0.41 $ 0.62
Diluted....................................... 0.47 (1.39) 0.41 0.61
1996:
Basic......................................... 0.26 (0.26) 0.46 0.52
Diluted....................................... 0.25 (0.26) 0.45 0.51
</TABLE>
20 MARKET INFORMATION
The Company's common stock is listed on the New York Stock Exchange. Its
trading symbol is CVS. Information with respect to quarterly trading ranges
(based on low/high sales prices), dividends per share and the number of record
shareholders is as follows:
<TABLE>
<CAPTION>
UNAUDITED 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER YEAR
- ----------------------------------- -------------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Market price per share:(1)
1997............................... $ 39-$48 $44 1/4-$53 3/4 $ 50 7/8-$60 $ 54 5/8-$70 $ 39-$70
1996............................... 27 1/4-36 3/8 35 1/4-44 1/2 36 5/8-46 36 3/8-44 3/4 27 1/4-46
Dividends paid per share:
1997............................... $ 0.11 $ 0.11 $ 0.11 $ 0.11 $ 0.44
1996............................... 0.11 0.11 0.11 0.11 0.44
Number of common shareholders:
1997............................... 10,200
1996(2)............................ 5,700
</TABLE>
- ------------------------
(1) On October 12, 1996, the Company completed the Footstar Distribution. The
stock prices shown in the above table are actual trading prices and do not
reflect any adjustment for the when-issued price of Footstar prior to its
October 16, 1996 commencement of trading on the New York Stock Exchange.
(2) The number of common shareholders has not been adjusted for the effect of
the CVS/Revco Merger.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIVE-YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1997 1996 1995 1994 1993
- ----------------------------------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:(3)
Net sales............................................ $ 12,738.2 $ 10,944.8 $ 9,763.4 $ 8,762.0 $ 6,452.2
Operating profit..................................... 199.8 540.8 230.7 376.3 284.9
Comparable operating profit(1)....................... 717.5 553.6 445.7 376.3 284.9
Earnings from continuing operations before
extraordinary item................................. 37.3 340.8 57.8 161.3 134.9
Comparable earnings from continuing operations before
extraordinary item(2).............................. 380.1 275.2 184.7 161.3 134.9
Net earnings (loss).................................. 37.7 176.6 (572.8) 375.7 374.8
Net earnings (loss) available to common
shareholders....................................... 24.0 162.1 (589.8) 358.7 358.0
Dividends declared................................... 82.2 68.6 184.3 185.4 184.9
- --------------------------------------------------------------------------------------------------------------
PER COMMON SHARE:
Earnings from continuing operations before
extraordinary item:
Basic................................................ $ 0.14 $ 1.97 $ 0.25 $ 0.89 $ 0.79
Diluted.............................................. 0.14 1.92 0.25 0.88 0.78
Comparable earnings from continuing operations before
extraordinary item:(2)
Basic................................................ 2.16 1.58 1.02 0.89 0.79
Diluted.............................................. 2.12 1.55 1.02 0.88 0.78
Net earnings (loss):
Basic................................................ 0.14 0.98 (3.60) 2.21 2.39
Diluted.............................................. 0.14 0.98 (3.59) 2.20 2.38
Dividends............................................ 0.44 0.44 1.52 1.52 1.52
- --------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Total assets......................................... $ 5,636.9 $ 5,693.7 $ 6,335.6 $ 6,885.3 $ 5,318.8
Current liabilities.................................. 2,855.0 2,122.8 2,561.1 2,332.2 1,633.3
Total long-term obligations and redeemable preferred
stock.............................................. 274.1 1,254.6 1,092.6 991.4 565.9
- --------------------------------------------------------------------------------------------------------------
PERCENTAGE OF NET SALES:
Operating profit..................................... 1.6% 4.9% 2.4% 4.3% 4.4%
Comparable operating profit(1)....................... 5.6 5.1 4.6 4.3 4.4
Earnings from continuing operations before
extraordinary item................................. 0.3 3.1 0.6 1.8 2.1
Comparable earnings from continuing operations before
extraordinary item(2).............................. 3.0 2.5 1.9 1.8 2.1
Net earnings (loss).................................. 0.3 1.6 (5.9) 4.3 5.8
- --------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
(1) Comparable operating profit excludes the pre-tax effect of the following
non-recurring charges: (i) in 1997, $411.7 million ($273.7 million
after-tax) related to the CVS/Revco Merger, $75.0 million ($49.9 million
after-tax) related to the markdown of non-compatible Revco merchandise
and $31.0 million ($19.1 million after-tax) related to the restructuring
of Big B, Inc., (ii) in 1996, $12.8 million ($6.5 million after-tax)
related to the failed merger of Rite Aid Corporation and Revco and (iii)
in 1995, $165.5 million ($97.7 million after-tax) related to the CVS
Strategic Restructuring Program and the early adoption of SFAS No. 121
and $49.5 million ($29.1 million after-tax) related to the Company
changing its policy from capitalizing internally developed software cost
to expensing the costs as incurred, outsourcing certain technology
functions and retaining certain employees until their respective job
functions were transitioned.
(2) Comparable earnings from continuing operations before extraordinary item and
comparable earnings per common share from continuing operations before
extraordinary item excludes the after-tax effect of the charges discussed in
Note (1) above and the $121.4 million ($72.1 million after-tax) gain on sale
of securities in 1996.
(3) Prior to the CVS/Revco Merger, Revco's fiscal year ended on the Saturday
closest to May 31. In recording the business combination, Revco's
consolidated financial statements have been restated to a December 31
year-end, to conform with CVS' fiscal year-end. As permitted by the rules
and regulations of the Securities and Exchange Commission, Revco's fiscal
years ended June 3, 1995 and May 28, 1994 have been combined with CVS'
fiscal years ended December 31, 1994 and 1993.
31
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
As of December 31, 1997, CVS Corporation had the following significant
subsidiaries:
CVS Center, Inc. (a New Hampshire corporation)
CVS Pharmacy, Inc. (a Rhode Island corporation)
Nashua Hollis CVS, Inc. (a New Hampshire corporation)(1)
CVS Vanguard, Inc. (a Minnesota corporation)
CVS New York, Inc. (a New York corporation, formerly Melville Corporation)
CVS Revco D.S., Inc. (a Delaware corporation, formerly Revco D.S., Inc.)
Revco Discount Drug Centers, Inc. (a Michigan corporation)(2)
Hook-SupeRx, Inc. (a Delaware corporation)(3)
Big B, Inc. (a Delaware corporation)(4)
PharmaCare Management Services, Inc. (a Delaware corporation)(5)
- ------------------------
(1) Nashua Hollis CVS, Inc. is the immediate parent corporation of
approximately 1,400 corporations that operate drugstores, all of which
drugstores are in the United States. CVS of DC and VA, Inc. (formerly
Peoples Drug Stores, Inc.), a direct subsidiary of Nashua Hollis CVS, Inc.,
is, in turn, the immediate parent of approximately 6 corporations that
operate drugstores, all of which drugstores are in the United States.
(2) Revco Discount Drug Centers, Inc. (a Michigan corporation) is the
immediate parent corporation of two corporations that operate drugstores,
all of which drugstores are in the United States. Revco Discount Drug
Centers, Inc. (an Ohio corporation), a direct subsidiary of Revco Discount
Drug Centers, Inc. (a Michigan corporation) is, in turn, the immediate
parent corporation of one corporation that operates drugstores, all of which
drugstores are in the United States.
(3) Hook-SupeRx, Inc. is the immediate parent corporation of one corporation
that operates drugstores, all of which drugstores are in the United States.
(4) Big B, Inc. is the immediate parent corporation of one corporation that
operates drugstores, all of which drugstores are in the United States.
(5) PharmaCare Management Services, Inc., the Company's prescription benefits
management subsidiary, is 95.8% owned by indirect subsidiaries of CVS
Corporation. PharmaCare Management Services, Inc. is, in turn, the
immediate parent corporation of PharmaCare Direct, Inc., a mail order
pharmacy corporation.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
of CVS Corporation:
We consent to incorporation by reference in the Registration Statements
Numbers 33-40251, 33-17181, 2-97913, 2-77397, 2-53766, 333-34927, and
333-28043 on Form S-8 of CVS Corporation of our report dated February 9,
1998, relating to the consolidated balance sheets of CVS Corporation and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statement of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997, which report is
incorporated by reference in the December 31, 1997 annual report on Form 10-K
of CVS Corporation and to our report dated February 9, 1998 on the related
financial statement schedule, which report appears in the December 31, 1997
annual report on Form 10-K of CVS Corporation.
/s/ KPMG PEAT MARWICK LLP
- ----------------------------
KPMG PEAT MARWICK LLP
Providence, Rhode Island
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 168,500
<SECURITIES> 0
<RECEIVABLES> 490,400
<ALLOWANCES> 38,000
<INVENTORY> 2,709,500
<CURRENT-ASSETS> 3,685,000
<PP&E> 1,515,900
<DEPRECIATION> 557,700
<TOTAL-ASSETS> 5,636,900
<CURRENT-LIABILITIES> 2,855,000
<BONDS> 779,800
0
284,600
<COMMON> 1,800
<OTHER-SE> 2,075,000
<TOTAL-LIABILITY-AND-EQUITY> 5,636,900
<SALES> 12,738,200
<TOTAL-REVENUES> 12,738,200
<CGS> 9,298,500
<TOTAL-COSTS> 9,298,500
<OTHER-EXPENSES> 3,239,900
<LOSS-PROVISION> 7,300
<INTEREST-EXPENSE> 44,800
<INCOME-PRETAX> 155,000
<INCOME-TAX> 117,700
<INCOME-CONTINUING> 37,300
<DISCONTINUED> 17,500
<EXTRAORDINARY> (17,100)
<CHANGES> 0
<NET-INCOME> 37,700
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000064803
<NAME> CVS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 471,800
<SECURITIES> 181,400
<RECEIVABLES> 386,700
<ALLOWANCES> 36,000
<INVENTORY> 2,328,100
<CURRENT-ASSETS> 3,528,900
<PP&E> 1,471,600
<DEPRECIATION> 506,100
<TOTAL-ASSETS> 5,693,700
<CURRENT-LIABILITIES> 2,122,800
<BONDS> 1,184,300
0
298,600
<COMMON> 1,700
<OTHER-SE> 1,896,100
<TOTAL-LIABILITY-AND-EQUITY> 5,693,700
<SALES> 10,944,800
<TOTAL-REVENUES> 10,944,800
<CGS> 7,892,700
<TOTAL-COSTS> 7,892,700
<OTHER-EXPENSES> 2,511,300
<LOSS-PROVISION> 11,200
<INTEREST-EXPENSE> 75,700
<INCOME-PRETAX> 592,100
<INCOME-TAX> 251,300
<INCOME-CONTINUING> 340,800
<DISCONTINUED> (164,200)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,600
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.98
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000064803
<NAME> CVS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 145,200
<SECURITIES> 176,900
<RECEIVABLES> 505,200
<ALLOWANCES> 58,600
<INVENTORY> 2,802,900
<CURRENT-ASSETS> 3,878,800
<PP&E> 2,225,200
<DEPRECIATION> 737,200
<TOTAL-ASSETS> 6,335,600
<CURRENT-LIABILITIES> 2,561,100
<BONDS> 1,027,600
1,300
334,900
<COMMON> 170,800
<OTHER-SE> 1,885,800
<TOTAL-LIABILITY-AND-EQUITY> 6,335,600
<SALES> 9,763,400
<TOTAL-REVENUES> 9,763,400
<CGS> 7,016,500
<TOTAL-COSTS> 7,016,500
<OTHER-EXPENSES> 2,516,200
<LOSS-PROVISION> 43,600
<INTEREST-EXPENSE> 114,500
<INCOME-PRETAX> 116,200
<INCOME-TAX> 58,400
<INCOME-CONTINUING> 57,800
<DISCONTINUED> (630,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (572,800)
<EPS-PRIMARY> (3.60)
<EPS-DILUTED> (3.59)
</TABLE>
