SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 1, 1997
(November 14, 1997)
FRED'S, INC.
(Exact name of registrant as specified in its charter)
Tennessee 00-19288 62-0634010
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification No.)
4300 New Getwell Road, Memphis, Tennessee 38118
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (901) 365-8880
<PAGE>
Item 5. Other Events.
1. On November 14, 1997, Fred's, Inc. ("Fred's"), through its wholly-owned
subsidiary Fred's Stores of Tennessee, Inc. (the "Buyer"), purchased 17 stores
from CVS Revco D.S., Inc., a Delaware corporation ("Seller"). The transaction
was effected pursuant to an Asset Purchase Agreement (the "Asset Purchase
Agreement") between the Buyer, Fred's, Seller and CVS Corporation, a Delaware
corporation ("CVS"). Prior to this transaction, Fred's and the Buyer were not
affiliated with the Seller or CVS and the Asset Purchase Agreement was
negotiated at arms' length. The transaction was funded through operating cash
and borrowings under Fred's existing line of credit.
A copy of Fred's October 14, 1997 and November 24, 1997 Press Releases
regarding the acquisition are attached as Exhibits to this Report on Form 8-K.
2. On November 24, 1997, Fred's announced that its Board of Directors approved a
five-for-four stock split, to be effected as a 25% stock dividend, of its Common
Stock, Class A voting, no par value. The new shares, one additional share for
every four shares currently held by stockholders, will be distributed on
December 19, 1997, to stockholders of record on December 5, 1997. Fred's
currently has 9.4 million shares of Common Stock outstanding. Cash will be paid
in lieu of fractional shares.
Fred's Board of Directors also declared a quarterly cash dividend of
$.05 per share on both old and new shares, using the same record date and
payment date as the stock split. This represents an effective increase of 25%
from the previous rate (which was $.04 per share per quarter, as adjusted for
the stock split). The higher dividend will be paid on December 19, 1997,
together with the stock dividend.
Fred's, Inc. operates 258 discount general merchandise stores in the
southeastern United States. The Company also markets goods and services to 31
franchised Fred's stores.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
<PAGE>
Exhibit No. Description
2.1 Asset Purchase Agreement between CVS Revco D.S., Inc., Fred's
Stores of Tennessee, Inc., CVS Corporation and Fred's, Inc., dated
as of October 10, 1997*
2.2 Letter Agreement between CVS Revco D.S., Inc., Fred's Stores of
Tennessee, Inc., CVS Corporation and Fred's, Inc. dated as of
November 1, 1997
99.1 Press Release dated October 14, 1997 announcing the asset
purchase
99.2 Press Release dated November 24, 1997, announcing the
completion of the asset purchase and the Fred's stock split and
dividend
*The following exhibits and schedules to the Asset Purchase Agreement
have been omitted, and Fred's will file supplementally any such exhibits or
schedules to the Commission upon request:
Exhibits and Schedules to Asset Purchase Agreement
Exhibit A List of Acquired Stores
Exhibit B Assignment and Assumption Agreement
Exhibit C Lease Assignment
Exhibit 10.02(c) Form of Opinion of Davis Polk & Wardwell
Exhibit 10.03(b) Form of Opinion of Waring Cox, PLC
Schedule 2.01(c) Fixed Assets
Schedule 2.06 Inventory Cost Schedule
Schedule 3.08(a) Lease Abstracts
Schedule 3.15 Sales Data
Schedule 9.02(a) Material Employee Plans
Schedule 9.02(b) Material Benefit Arrangements
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRED'S, INC.
/s/ Richard B. Witaszak
Date: December 1, 1997
Richard B. Witaszak
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer)
<PAGE>
ASSET PURCHASE AGREEMENT
dated as of
October 10, 1997
between
CVS REVCO D.S., INC.
and
FRED'S STORES OF TENNESSEE, INC.
<PAGE>
TABLE OF CONTENTS
----------------------
PAGE
ARTICLE 1
Definitions
SECTION 1.01. Definitions.....................................................1
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale...............................................4
SECTION 2.02. Excluded Assets.................................................5
SECTION 2.03. Assumed Liabilities.............................................6
SECTION 2.04. Excluded Liabilities............................................7
SECTION 2.05. Purchase Price; Allocation of Purchase Price....................7
SECTION 2.06. Inventory.......................................................8
SECTION 2.07. Prorations.....................................................10
SECTION 2.08. Closing........................................................11
SECTION 2.09. Price Adjustment for Failed Landlord Consent...................11
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
SECTION 3.01. Corporate Existence and Power..................................12
SECTION 3.02. Corporate Authorization........................................12
SECTION 3.03. Governmental Authorization.....................................12
SECTION 3.04. Noncontravention...............................................13
SECTION 3.05. Absence of Certain Changes.....................................13
SECTION 3.06. Litigation.....................................................14
SECTION 3.07. Compliance with Laws and Court Orders..........................14
SECTION 3.08. Properties.....................................................14
SECTION 3.09. Title to the Purchased Assets..................................15
SECTION 3.10. Inventories....................................................15
SECTION 3.11. Finders' Fees..................................................15
SECTION 3.12. Environmental Compliance.......................................15
SECTION 3.13. Labor Relations................................................16
SECTION 3.14. Store Leases...................................................16
SECTION 3.15. Sales Data.....................................................16
SECTION 3.16. Prescription Volume Data.......................................16
SECTION 3.17. Intellectual Property..........................................17
<PAGE>
PAGE
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 4.01. Corporate Existence and Power..................................17
SECTION 4.02. Corporate Authorization........................................17
SECTION 4.03. Governmental Authorization.....................................17
SECTION 4.04. Noncontravention...............................................17
SECTION 4.05. Financing......................................................18
SECTION 4.06. Litigation.....................................................18
SECTION 4.07. Finders' Fees..................................................18
ARTICLE 5
COVENANTS OF SELLER
SECTION 5.01. Conduct of the Business........................................18
SECTION 5.02. Access to Information..........................................19
SECTION 5.03. Non-Solicitation of Customers..................................20
SECTION 5.04. Restriction on CVS Recruiting..................................20
SECTION 5.05. Conversion of Computer Files...................................20
SECTION 5.06. Assistance in Transfer of Licenses, Permits and
Registrations...........................................21
SECTION 5.07. List of Vendors................................................21
SECTION 5.08. Use of NABP Numbers and Assignment of Third-Party
Contracts...............................................21
SECTION 5.09. Christmas Season Merchandise...................................21
ARTICLE 6
COVENANTS OF BUYER
SECTION 6.01. Confidentiality................................................22
SECTION 6.02. Access ........................................................22
ARTICLE 7
COVENANTS OF BUYER AND SELLER
SECTION 7.01. Best Efforts; Further Assurances...............................23
SECTION 7.02. Certain Filings................................................23
SECTION 7.03. Public Announcements...........................................24
SECTION 7.04. Trademarks; Tradenames.........................................24
SECTION 7.05. Notices of Certain Events......................................24
SECTION 7.06. Casualty.......................................................25
<PAGE>
PAGE
SECTION 7.07. Additional Post-closing Covenant Relating to Store Leases......25
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Definitions................................................26
SECTION 8.02. Tax Matters....................................................26
SECTION 8.03. Tax Cooperation; Allocation of Taxes...........................27
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Employee Benefits Definitions..................................28
SECTION 9.02. Employment and Benefits Representations........................28
SECTION 9.03. Employees; Employee Benefits...................................29
SECTION 9.04. No Third Party Beneficiaries...................................30
ARTICLE 10
CONDITIONS TO TRANSACTIONS HEREUNDER
SECTION 10.01. Conditions to Obligations of Buyer and Seller.................30
SECTION 10.02. Conditions to Obligation of Buyer.............................31
SECTION 10.03. Conditions to Obligation of Seller............................31
ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival......................................................32
SECTION 11.02. Indemnification...............................................32
SECTION 11.03. Procedures....................................................34
SECTION 11.04. Exclusivity...................................................35
ARTICLE 12 TERMINATION
SECTION 12.01. Grounds for Termination.......................................36
SECTION 12.02. Effect of Termination.........................................36
ARTICLE 13
Miscellaneous
SECTION 13.01. Notices.......................................................36
SECTION 13.02. Amendments and Waivers........................................38
SECTION 13.03. Expenses......................................................38
<PAGE>
SECTION
SECTION 13.04. Successors and Assigns
.......................................................38
SECTION 13.05. Governing Law.................................................38
SECTION 13.06. Jurisdiction..................................................38
SECTION 13.07. Counterparts; Third Party Beneficiaries.......................39
SECTION 13.08. Entire Agreement..............................................39
SECTION 13.09. Bulk Sales Laws...............................................39
SECTION 13.10. Captions......................................................39
SECTION 13.11. CVS Corporation Guaranty......................................39
SECTION 13.12. Fred's Inc Guaranty...........................................40
EXHIBITS AND SCHEDULES
Exhibit A...............................................................Recitals
Exhibit B........................................................Section 2.08(b)
Exhibit C........................................................Section 2.08(c)
Exhibit 10.02(c)................................................Section 10.02(c)
Exhibit 10.03(b)................................................Section 10.03(b)
Schedule 2.01(c).................................................Section 2.01(c)
Schedule 2.06.......................................................Section 2.06
Schedule 3.08(a).................................................Section 3.08(a)
Schedule 3.15..................................... ...Section 3.15, Section 3.16
Schedule 9.02(a).................................................Section 9.02(a)
Schedule 9.02(b).................................................Section 9.02(b)
<PAGE>
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of October 10, 1997 between CVS Revco D.S., Inc., a
Delaware corporation ("Seller"), Fred's Stores of Tennessee, Inc., a Tennessee
corporation ("Buyer"), as to Section 13.11 only, CVS Corporation, a Delaware
corporation ("CVS"), and as to Section 13.12 only, Fred's Inc., a Tennessee
corporation ("Fred's").
W I T N E S S E T H :
WHEREAS, Seller owns and operates the Drugs for Less stores (the
"Stores") listed on Exhibit A hereto;
WHEREAS, Buyer desires to purchase the Purchased Assets (as defined
below) relating to the Stores from Seller and to assume certain related
liabilities, and Seller desires to sell such Purchased Assets to Buyer, upon the
terms and subject to the conditions hereinafter set forth;
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions.
(a) The following terms, as used herein, have the following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such other Person. Affiliate, when used with respect to Seller, includes
(without limitation) CVS, Big B, Inc. and its Subsidiaries. Affiliate, when used
with respect to Buyer, includes (without limitation) Fred's.
"Closing Date" means the date of the Closing.
"Effective Time" means, for each Store, the commencement of the
inventory count on the Inventory Date for such Store.
"Environmental Laws" means any federal, state, local or foreign law,
treaty, regulation, rule, judgment or order relating to the environment or to
any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous
substances or wastes.
<PAGE>
"Environmental Liabilities" means any and all liabilities relating to
the Stores, the Purchased Assets or any activities or operations occurring or
conducted at the real property subject to the Store Leases, which arise under
Environmental Laws, but only to the extent such liabilities relate to conditions
or activities preceding the applicable Effective Time which (A) as of the
Effective Time, are required to be remediated under, or represent a
noncompliance with, Environmental Laws as in effect at the applicable Effective
Time and (B) have been caused, created or conducted by Seller or its
Subsidiaries.
"Environmental Permits" means all permits, licenses, certificates and
other similar authorizations of governmental authorities relating to or required
by Environmental Laws and relating to the Stores.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intellectual Property Right" means any trademark, service mark, trade
name, mask work, invention, patent, trade secret, copyright, know-how (including
any registrations or applications for registration of any of the foregoing) or
any other similar type of proprietary intellectual property right.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest or encumbrance in respect of such
property or asset (except such as may exist in favor of the lessor under any
Store Lease). For the purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any property or asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
property or asset.
"Material Adverse Effect" means a material adverse effect on the
condition (financial or otherwise), business, assets, liabilities or results of
operations of the Stores as a whole (other than the Excluded Assets).
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
"Real Property" means the real property subject to a Store Lease.
"Store Lease" means any lease or sublease of, or any other interest
in, real property occupied by a Store and any guarantee by Seller or its
Affiliate of such Store lease or sublease.
<PAGE>
"Subsidiary" means, with respect to any Person, any 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 same time directly or indirectly owned by such Person. With respect
to Seller, Subsidiaries include (without limitation) Big B, Inc. and its
Subsidiaries.
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Term Section
Accounting Referee 2.05
----
Allocation Statement 2.05
----
Apportioned Obligations 8.03
----
Assumed Liabilities 2.03
----
Benefit Arrangements 9.02
----
Benefit Transition Period 9.03
Buyer Guaranteed Parties 13.11
Buyer Representatives 6.01
----
CVS Guaranty 13.11
Closing 2.08
----
Code 8.01
----
Conveyance Documents 2.08
----
Damages 11.02
-----
Day 30 2.05
----
Employee Plans 9.01
----
ERISA 9.01
----
ERISA Affiliate 9.01
----
Excluded Assets 2.02
----
Excluded Liabilities 2.04
----
Final Inventory Price 2.06
----
Fixed Assets Purchase Price 2.05
----
Fred's Guaranty 13.12
Indemnified Party 11.03
-----
Indemnifying Party 11.03
-----
Initial Inventory Date 2.06
----
Initial Inventory Price 2.06
----
Intellectual Property 2.01
----
Inventory Date 2.06
----
Inventory Firm 2.06
----
Inventory Purchase Price 2.05
----
Leased Real Property 2.01
----
Multiemployer Plan 9.01
----
Permitted Liens 3.08
----
Petty Cash 2.06
----
Pre-Closing Tax Period 8.01
----
<PAGE>
Term Section
Premium 2.05
----
Prorated Charges 2.07
----
Purchased Assets 2.01
----
Purchase Price 2.05
----
1934 Act Reports 3.05
----
Seller Guaranteed Parties 13.12
Seller Trademarks and Tradenames 7.04
----
Store Employee 9.01
----
Stores Recitals
Tax 8.01
----
Taxing Authority 8.01
----
Third-Party Claim 7.07
----
Transfer Taxes 8.03
----
ARTICLE 2
PURCHASE AND SALE
SECTION 2.01. Purchase and Sale. Except as otherwise provided below,
upon the terms and subject to the conditions of this Agreement, Buyer agrees to
purchase from Seller and Seller agrees to sell, convey, transfer, assign and
deliver, or cause to be sold, conveyed, transferred, assigned and delivered, to
Buyer at the Closing, free and clear of all Liens, other than Permitted Liens,
all of Seller's right, title and interest in, to and under the following assets
and properties of the Stores, as the same shall exist on the Closing Date,
including all assets of the Stores acquired by Seller between the date hereof
and the Closing Date (the "Purchased Assets"):
(a) all rights and interests of Seller and its Subsidiaries under the
Store Leases (the real property leased pursuant to the Store Leases is
referred to collectively as the "Leased Real Property") (and copies of
all Store Lease documents, related construction plans and documents,
and related real estate files);
(b) all pharmaceutical and non-pharmaceutical inventories at the
Stores (including private label inventory labeled "Drugs For excluding
other private label inventory, consignment inventory and pharmaceutical
inventory which has an expiration date within 60 days of the Closing
Date (the "Inventory") and Petty Cash purchased pursuant to Section
2.06;
(c) all fixed assets and other personal property at the Stores and
owned by Seller or its Subsidiaries, including fixtures, fittings,
furniture, leasehold improvements, computer hardware, office equipment,
point-of-sale equipment, sensormatic equipment, communications
equipment, store and
<PAGE>
pharmacy supplies and other tangible property, with respect to which
assets Seller has previously delivered to Buyer a schedule of such
assets (attached as Schedule 2.01(c)) materially accurate as of the
date of such schedule;
(d) all prescription files owned and used by Seller or its
Subsidiaries in connection with the operation of the Stores (but
excluding access to Seller's PAL system and excluding the assets in
Section 2.02(e) below except to the extent provided for in Section
5.05);
(e) all Intellectual Property Rights of Seller or its Subsidiaries in
the "Drugs For Less" name, but only to the extent owned by Seller or
its Subsidiaries (the "Intellectual Property");
(f) all goodwill associated with the Stores and/or the Purchased
Assets; and
(g) all records located at the Stores relating to the Purchased
Assets, provided that Seller and its Subsidiaries may retain copies of
all Store Lease documents and related real estate files and provided
further that Buyer will be entitled to copies of relevant third-party
prescription contracts.
SECTION 2.02. Excluded Assets. Buyer expressly understands and agrees
that all other assets and properties of Seller and its Affiliates (the "Excluded
Assets") shall be excluded from the Purchased Assets, including without
limitation the following:
(a) all of Seller's cash and cash equivalents on hand and in banks,
other than Petty Cash;
(b) insurance policies;
(c) refund of Taxes attributable to any Pre-Closing Tax Period and
with respect to which Seller is responsible hereunder;
(d) all leased equipment located at or used in the Stores;
(e) all computer software owned or used by Seller or its Affiliates;
(f) all private label (except goods labeled "Drugs For Less") and
consignment inventory, and pharmaceutical inventory which has an
expiration date within 60 days of the Closing Date;
(g) all trade accounts receivable and other receivables;
<PAGE>
(h) all trademarks, service marks, trade names and patents owned or
used in connection with the operation of the Stores other than those
specifically referenced in Section 2.01(e);
(i) any Purchased Assets sold or otherwise disposed of in the ordinary
course of Stores and not in violation of any provisions of this
Agreement during the period from the date hereof until the applicable
Effective Time; and
(j) all records relating to any Excluded Asset.
SECTION 2.03. Assumed Liabilities. Upon the terms and subject to the
conditions of this Agreement, Buyer agrees, effective at each applicable
Effective Time, to assume and be responsible for the following liabilities (the
"Assumed Liabilities"):
(a) all liabilities arising under or in connection with any Store
Lease in respect of any period after the applicable Effective Time;
(b) all liabilities (including Tax liabilities and liabilities under
Environmental Laws) arising out of ownership or operation, or in
connection with ownership or operation, of the Stores or the Purchased
Assets after the applicable Effective Time; and
(c) all liabilities treated as Assumed Liabilities under Article 9
hereof.
SECTION 2.04. Excluded Liabilities. Notwithstanding any provision in
this Agreement or any other writing to the contrary, Buyer is assuming only the
Assumed Liabilities and is not assuming any other liability or obligation of
Seller or its Affiliates (or any predecessor of Seller or any prior owner of all
or part of its businesses and assets) of whatever nature, whether presently in
existence or arising hereafter. All such other liabilities and obligations shall
be retained by and remain obligations and liabilities of Seller or its
Affiliates, including without limitation any claim of a Store Employee as a
third party beneficiary of any contractual obligation of Seller or any of its
Affiliates which contractual obligation is in existence as of or prior to the
applicable Effective Time (all such liabilities, claims and obligations not
being assumed being herein referred to as the "Excluded Liabilities"), and,
notwithstanding anything to the contrary in this Section 2.04, none of the
following shall be Assumed Liabilities for the purposes of this Agreement:
(a) any obligation or liability for Taxes relating to or imposed with
respect to any Pre-Closing Tax Period; provided that Transfer Taxes
incurred in connection with the transactions contemplated by this
Agreement shall be paid in the manner set forth in Section 8.03 hereof;
<PAGE>
(b) any liability treated as an Excluded Liability under Article 9
hereof; and
(c) any liability or obligation relating to an Excluded Asset.
SECTION 2.05. Purchase Price; Allocation of Purchase Price. (a) The
purchase price (the "Purchase Price") for the Purchased Assets is the sum of (i)
an amount equal to the aggregate value of the inventory as determined in
accordance with Section 2.06 (the "Inventory Purchase Price"), (ii) the Petty
Cash at each Store and (iii) (the "Fixed Assets Purchase Price"), which Seller
and Buyer agree represents the net book value of the fixed assets and other
tangible property referred to in Section 2.01(c) and (y) $1,350,000 (the
"Premium") in respect of the balance of the Purchased Assets.
(b) The Buyer shall pay the Petty Cash at each Store, the Fixed Assets
Purchase Price and 90% of the Initial Inventory Price at Closing pursuant to
Section 2.08(a), and the balance, if any, of the Inventory Purchase Price shall
be paid as provided in the last two sentences of Section 2.06(a). Buyer shall
pay the Premium to Seller within 30 calendar days after the Closing Date. Each
such payment shall be made in immediately available funds by wire transfer to an
account of Seller with a bank in New York City designated by Seller (or if not
so designated, then by certified or official bank check payable in immediately
available funds to the order of Seller). If not paid within 30 calendar days
after the Closing Date (such thirtieth day, "Day 30"), the Premium shall bear
interest from and including the calendar day next succeeding Day 30 to but
excluding the date of payment at a rate per annum equal to 2% over the LIBOR
Rate as published in the Wall Street Journal, Eastern Edition in effect from
time to time during the period from the day after Day 30 to the date of payment.
Such interest shall be payable at the same time as the Premium and shall be
calculated daily on the basis of a year of 365 days and the actual number of
days elapsed.
(c) As soon as practicable after the Closing Date, Seller shall
deliver to Buyer a statement (the "Allocation Statement"), allocating the
Purchase Price (plus Assumed Liabilities) among the Purchased Assets in
accordance with Section 1060 of the Code. Buyer shall have a period of 10
business days after the delivery of the Allocation Statement to present in
writing to Seller notice of any reasonable objections Buyer may have to the
allocation set forth in the Allocation Statement. Unless Buyer timely objects,
the Allocation Statement shall be binding on the parties without further
adjustment. If Buyer shall raise any objections within the 10-day period, Buyer
and Seller shall negotiate in good faith and use their best effort to resolve
such dispute. If the parties fail to resolve the dispute within 7 days after the
delivery of Buyer's notice, then the disputed items shall be resolved by a
nationally recognized accounting firm (the "Accounting Referee") jointly
retained by Seller
<PAGE>
and Buyer. The Accounting Referee shall resolve the dispute within 30 days of
having the disputed item referred to it and the Allocation Statement shall be
adjusted accordingly. The costs, fees and expenses of the Accounting Referee
shall be borne equally by Buyer and Seller.
(d) Seller and Buyer agree to (i) be bound by the Allocation
Statement, and (ii) act in accordance with the Allocation Statement, and in the
preparation of financial statements and filing of all Tax returns (including,
without limitation filing Form 8594 with its federal income Tax return for the
taxable year that includes the date of the Closing).
(e) Not later than 30 days prior to the filing of their respective
Forms 8594 relating to this transaction, each party shall deliver to the other
party a copy of its Form 8594.
SECTION 2.06. Inventory. (a) The Seller and the Buyer will cause an
outside firm mutually acceptable to the parties (the "Inventory Firm") to take a
physical count of the inventory of each Store. The count of the Inventory shall
commence on the later of November 2, 1997 and the third business day after all
conditions set forth in Article 10 are satisfied (or capable of being satisfied)
or waived or sooner if the parties agree (the "Initial Inventory Date") and
shall continue until completed; provided that all inventories shall be completed
within seven days after the Initial Inventory Date or as soon thereafter as
possible (each date on which an inventory is completed is hereinafter referred
to as an "Inventory Date"). The expense of the Inventory Firm shall be shared
equally by Buyer and Seller. Copies of the initial inventory reports prepared in
connection with the counting of the inventory shall be delivered to the persons
identified in Section 13.01 hereof no later than the business day following the
completion of each inventory count. Each party shall have no more than two
representatives present during the count of each inventory who shall resolve any
disputed items concerning the inventory; provided, however, that the parties may
have other representatives present who are not involved in the inventory count.
On the eighth day following the Initial Inventory Date, the Inventory Firm shall
provide Seller and Buyer with a Certificate setting forth their estimate of the
amount of the Inventory (the "Initial Inventory Price") as valued based on the
initial inventory reports described above, reduced to cost utilizing the
methodology described on Schedule 2.06 hereto (reflecting for Buyer's benefit
any free goods, rebates, discounts and other cost reductions to the extent such
are known and can be verified by Seller). The payment of the part of the
Purchase Price pertaining to the Inventory on the Closing Date shall be based
upon the Initial Inventory Price. Within five business days after the Closing
Date, the Inventory Firm shall submit to the Buyer and the Seller a Certificate
setting forth their final valuation of the inventory valued as aforesaid (the
"Final Inventory Price"). Buyer and Seller shall then review the Final Inventory
Price in order to verify the Inventory Firm's calculations. The final Purchase
Price shall then be determined using the Final Inventory Price determined by the
Inventory Firm and
<PAGE>
agreed to by Buyer and Seller in good faith. The Final Inventory Price so
determined shall be the Inventory Purchase Price for purposes of Section 2.05.
Buyer or Seller (as the case may be) shall, within 10 business days after the
Inventory Purchase Price is so determined, pay to the other the appropriate
amount necessary to reflect the final Inventory Purchase Price. Such payment
shall be made in immediately available funds by wire transfer to a bank account
of the payee party designated by the payee by notice to the payor party (or if
not so designated, then by certified or official bank check payable in
immediately available funds to the order of the payee in such amount).
(b) Operations; Title. Risk of loss to the Purchased Assets will
transfer to Buyer in respect of each Store at the Effective Time with respect to
such Store. Transfer of title to all of the Purchased Assets will occur on the
Closing Date. Buyer shall enjoy possession of the Real Property relating to each
Store at the applicable Effective Time. Seller agrees that Buyer may, at least
two weeks prior to the Initial Inventory Date, interview Store Employees in
order to make hiring decisions so long as a representative of Seller is present
at such interviews. Seller agrees that Buyer may install its sales systems
equipment in the Stores shortly before each Inventory Date. All sales at a Store
after the completion of the inventory with respect to such Store shall be for
the account of Buyer. If the transactions contemplated by this Agreement shall
not close for any reason by the fourteenth day after the Initial Inventory Date,
(i) the transfers and possession described herein shall be null and void, (ii)
Buyer shall account to Seller for sales at the Stores by Buyer after the taking
of the inventory but prior to the date on which the transfers are nullified,
(iii) all payments made by Buyer to Seller (including but not limited to the
Non-Inventory Purchase Price) shall be returned to Buyer immediately upon the
request of Buyer and regardless of whether any party hereto has any claim
against the other under this Agreement or otherwise, and (iv) Buyer and Seller
will take all reasonable actions necessary to restore the parties to their
respective positions in existence prior to the Initial Inventory Date.
(c) Register Procedures. Immediately prior to the commencement of each
inventory at a Store, all cash and working funds in Seller's cash registers at
such Store in excess of $2,000 in the aggregate shall be removed and kept by the
Seller. All petty cash up to an aggregate of $2,000 at each Store (the "Petty
Cash") shall be purchased by Buyer. Such Petty Cash purchased by Buyer shall
remain in the registers for sales that occur while the inventory is being taken
and thereafter. Buyer's registers shall be read by Buyer and Seller immediately
prior to the commencement of the inventory. At the conclusion of each inventory,
Buyer's registers shall again be read by Buyer and Seller. The amount of sales
during the inventory shall be calculated based on the difference in the register
readings between these two times. At the time of the payment of the prorations
referred to in Section 2.07 hereof, Buyer shall pay Seller an amount equal to
one half of the amount of such sales after conversion to cost using a cost of
merchandise sold of 70%.
<PAGE>
SECTION 2.07. Prorations. At the time of the payment of any amount
required to reflect the final Inventory Purchase Price pursuant to Section 2.06
or as soon thereafter as practicable, all rent (including without limitation
percentage rent), common area charges, utility charges, and other obligations
under the Store Leases shall be prorated as of the applicable Inventory Date
(collectively the "Prorated Charges"). Whenever possible, such prorations shall
be based on actual, current payments by Seller or its Subsidiaries and to the
extent such actual amounts are not available, such prorations shall be estimated
as of the applicable Inventory Date based on actual amounts for the most recent
comparable billing period. When the actual amounts become known, such prorations
shall be recalculated by Buyer and Seller, and Buyer or Seller promptly (but not
later than 10 business days after notice of payment due) shall make any
additional payment or refund, as the case may be, so that the correct prorated
amount is paid by each of Buyer and Seller. The foregoing shall include an
estimate of a pro rata amount of percentage rent payable under a Store Lease
based upon the prior year's sales with an appropriate adjustment to be made not
later than the date that Buyer is obligated to pay such percentage rent.
Seller's actual prorated share shall be determined by multiplying (A) a
fraction, the numerator of which is the amount of Seller's or its Subsidiaries'
gross annual sales at such Store from the first day of such lease year to (but
not including) the applicable Inventory Date, and the denominator of which is
the sum of Buyer's and Seller's or its Subsidiaries' gross annual sales at such
Store for the entire lease year, times (B) the amount of percentage rent
actually due under the Store Lease for such Store. Seller, upon the request of
Buyer, shall promptly provide Buyer such information as Buyer shall be required
to submit to landlords under the Store Leases in connection with the payment of
percentage rent with respect to the Store.
SECTION 2.08. Closing. The closing (the "Closing") of the purchase and
sale of the Purchased Assets and the assumption of the Assumed Liabilities
hereunder shall take place at the offices of Waring Cox, PLC, 50 North Front
St., Suite 1300, Memphis, Tennessee, as soon as possible, but in no event later
than the business day after completion of the inventory taking pursuant to
Section 2.06, or at such other time or place as Buyer and Seller may agree. The
purchase and sale of the Purchased Assets and each Store shall be deemed
effective for all purposes as of the applicable Effective Time. At the Closing:
(a) Buyer shall deliver to Seller the sum of the Petty Cash for each
Store, plus the Fixed Assets Purchase Price plus 90% of the Initial
Inventory Price, in immediately available funds by wire transfer to an
account of Seller with a bank in New York City designated by Seller, by
notice to Buyer, which notice shall be dispatched by Seller for receipt
by Buyer not later than two business days prior to the Closing Date (or
if not so designated, then by certified or official bank check payable
in immediately available funds to the order of Seller in such amount).
<PAGE>
(b) Seller and Buyer shall enter into an Assignment and Assumption
Agreement substantially in the form attached hereto as Exhibit B, and
Seller shall deliver to Buyer such deeds, bills of sale, endorsements,
assignments and other good and sufficient instruments of conveyance and
assignment (the "Conveyance Documents") as the parties and their
respective counsel shall deem reasonably necessary or appropriate to
vest in Buyer all right, title and interest in, to and under the
Purchased Assets.
(c) Buyer and the Seller shall execute and deliver to each other
instruments of assignment and assumption, in form and content
reasonably acceptable to counsel for Buyer and Seller, pursuant to
which Seller or its Subsidiaries, as the case may be, shall assign the
Store Leases and the Buyer shall assume all obligations thereunder in
respect of any periods after the applicable Effective Time (which shall
be substantially in the form of Exhibit C hereto except that if the
landlord refuses to execute such a document or if no landlord consent
is required, Exhibit C shall be modified to delete the provisions
pertaining to the landlord's obligations or consent).
SECTION 2.09. Price Adjustment for Failed Landlord Consent. If any
landlord consent required in connection with the assignment of any Store Lease
to Buyer hereunder is not obtained and Buyer elects to waive Section 10.02(b)
and proceed with the transactions contemplated hereby, then Buyer may reject
such Store Lease, in which case (i) the assets of the applicable Store will not
be included in the Purchased Assets, and (ii) the Purchase Price will be reduced
for such Store by the sum of (x) the Premium divided by 17 (i.e. $79,411.76) and
(y) the net book value of the fixed assets of such Store as set forth in
Schedule 2.01(c) hereto.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of Closing Date that:
SECTION 3.01. Corporate Existence and Power. CVS and its Subsidiaries
are corporations duly incorporated, validly existing and in good standing under
the laws of their jurisdictions of incorporation and have all corporate powers
and all material governmental licenses, authorizations, permits, consents and
approvals required to carry on their business as now conducted. CVS and its
Subsidiaries are duly qualified to do business as foreign corporations and are
in good standing in each jurisdiction where such qualification is necessary,
except for those jurisdictions
<PAGE>
where failure to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect.
SECTION 3.02. Corporate Authorization. The execution, delivery and
performance by each of CVS and Seller of this Agreement and the consummation of
the transactions contemplated hereby are within the corporate powers of CVS and
Seller and have been duly authorized by all necessary corporate action on the
part of CVS and Seller. This Agreement constitutes a valid and binding agreement
of each of CVS and Seller enforceable against each of CVS and Seller in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity.
SECTION 3.03. Governmental Authorization. The execution, delivery and
performance by CVS and Seller of this Agreement and the consummation of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any governmental body, agency or official other than compliance
with any applicable requirements of the HSR Act and any such action or filing as
to which the failure to make or obtain would not reasonably be expected to have
a Material Adverse Effect.
SECTION 3.04. Noncontravention. The execution, delivery and performance
by CVS and Seller of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) violate the certificate of
incorporation or bylaws of CVS or its Subsidiaries, (ii) assuming compliance
with the matters referred to in Section 3.03, violate any applicable law, rule,
regulation, judgment, injunction, order or decree, (iii) assuming the obtaining
of all consents required under the Store Leases as a result of the transactions
contemplated hereby, constitute a default under or give rise to any right of
termination, cancellation or acceleration of any right of Buyer or to a loss of
any benefit relating to the Stores or the Purchased Assets under any provision
of any agreement or other instrument by which any of the Purchased Assets is or
may be bound or (iv) result in the creation or imposition of any Lien on any
Purchased Asset, other than Permitted Liens and except such as, in the case of
(iii) and (iv), would not reasonably be expected to have a Material Adverse
Effect.
SECTION 3.05. Absence of Certain Changes. Since June 30, 1997, except
as disclosed in any report or public filing filed by Seller under the 1934 Act
prior to the date hereof (the "1934 Act Reports"), the business of the Stores
has been conducted in the ordinary course consistent with past practices and
there has not been:
(a) any event, occurrence, development or state of circumstances or
facts which has had or could reasonably be expected to have a Material
Adverse Effect, except such as may affect the economy or chain drug
store industry generally;
<PAGE>
(b) any creation or other incurrence of any Lien on any material
Purchased Asset other than in the ordinary course of business
consistent with past practices or Permitted Liens;
(c) any sale or transfer, or any agreement to sell or transfer, any
material Purchased Asset to any Person, except in the ordinary course
of business;
(d) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the Stores or any Purchased Asset
which, individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect; or
(e) any labor dispute, other than routine individual grievances, or
any activity or proceeding by a labor union or representative thereof
to organize any employees of the Stores, which employees were not
subject to a collective bargaining agreement at June 30, 1997 or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or
with respect to employees of the Stores.
SECTION 3.06. Litigation. Except as disclosed in the 1934 Act Reports,
there is no action, suit, investigation or proceeding pending against, or to the
best knowledge of Seller, threatened against, Seller or its Subsidiaries, the
Stores or any Purchased Asset before any court or arbitrator or any governmental
body, agency or official (a) which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect or (b) which in any
manner challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
SECTION 3.07. Compliance with Laws and Court Orders. Seller and its
Subsidiaries are not in violation of, have not since June 30, 1997 violated, and
to the knowledge of Seller are not under investigation with respect to any
violation of, any law, rule, regulation, judgment, injunction, order or decree
applicable to the Purchased Assets or the conduct of the Stores, except for
violations that have not had and could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
SECTION 3.08. Properties. (a) None of the Stores is operated on real
property that is owned by Seller or its Affiliates, and no owned real property
is included in the Purchased Assets. Schedule 3.08(a) correctly describes, in
the case of each Store Lease, the name of the lessor or sublessor, the lease
term and basic annual rent, and the full address thereof (street number,
city/town, county and state).
(b) Seller or its Affiliate has good and marketable title to, or, in
the case of Store Leases or leased personal property, has valid leasehold
interests in, all the
<PAGE>
Purchased Assets (whether real, personal, tangible or intangible). No Purchased
Asset is subject to any Lien, except:
(i) Liens for taxes not yet due or being contested in good faith; or
(ii) Liens (other than liens of lenders) which do not materially
detract from the value of such Purchased Asset or materially interfere
with any present use of such Purchased Asset (clauses 3.08(b)(i) and
3.08(b)(ii) are, collectively, the "Permitted Liens").
(c) To the knowledge of Seller, the real property subject to Store
Leases, and its continued use, occupancy and operation as currently used,
occupied and operated, do not constitute a nonconforming use under any
applicable building, zoning, subdivision and other land use and similar laws,
regulations and ordinances.
(d) To the knowledge of Seller, the real property subject to Store
Leases is in good working order, except for ordinary wear and tear, and to the
knowledge of Seller, there are no items of deferred maintenance.
SECTION 3.09. Title to the Purchased Assets. Upon consummation of the
transactions contemplated hereby and subject to the receipt of landlord consents
under the Store Leases, Buyer will have acquired good and marketable title in
and to, or a valid leasehold interest in, each of the Purchased Assets, free and
clear of all Liens, except for Permitted Liens.
SECTION 3.10. Inventories. All inventories included in the Purchased
Assets are owned free and clear of all Liens. All of the inventories of the
Stores at the applicable Effective Time will consist of, items of a quality
usable or saleable in the normal course of the business of the Stores consistent
with past practices.
SECTION 3.11. Finders' Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Seller who might be entitled to any fee or commission in connection
with the transactions contemplated by this Agreement.
SECTION 3.12. Environmental Compliance. (a) Except as would not
reasonably be expected to have a Material Adverse Effect:
(i) in connection with or relating to the Stores, Purchased Assets, or
real property subject to Store Leases, no notice, notification, demand,
request for information, citation, summons or order has been received
by Seller, no penalty has been assessed against Seller or its
Affiliates and no investigation, action, claim, proceeding or review is
pending, or threatened by any governmental entity or other Person
against Seller or its Affiliates with respect to matters arising out of
or relating to any Environmental Law;
<PAGE>
(ii) Seller and its Affiliates have not created any condition on any
real property subject to a Store Lease or on any Purchased Asset that
requires remediation under any Environmental Law; and
(iii) in connection with the Stores, Purchased Assets and real property
subject to Store Leases, the Seller and its Affiliates are in
compliance with all Environmental Laws and have and are in compliance
with all Environmental Permits.
(b) None of the Purchased Assets or the real property subject to Store
Leases is located in New Jersey or Connecticut.
SECTION 3.13. Labor Relations. To the best of Seller's knowledge, since
June 30, 1997, no Store has been or is a party to any collective bargaining
agreement. To the best of Seller's knowledge, since June 30, 1997, there has not
been and there is not presently pending, existing or threatened, (a) any strike,
slowdown, picketing, work stoppage, or employee grievance process by Store
employees, (b) any proceeding against or affecting any Store relating to the
alleged violation of any law pertaining to labor relations or employment
matters, including any charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission,
or any comparable governmental body, organizational activity, or (c) any
application for certification of a collective bargaining agent. To the best of
Seller's knowledge, no event has occurred or circumstance exists that could
reasonably provide the basis for any work stoppage or other labor dispute and
there is no lockout of any employees by any Store, and no such action is
contemplated by any Store.
SECTION 3.14. Store Leases. (a) Seller has delivered to Buyer copies of
all of the Store Leases and amendments, if any, which copies are true and
complete in all material respects. Each of the Store Leases is a valid and
subsisting lease enforceable against the parties thereto in accordance with its
terms. As of the date hereof, to the Seller's knowledge, no default of any
landlord under any of such Store Lease after applicable grace periods, if any,
exists. Seller has not received as of the date hereof any written notices
alleging a default by Seller or its Affiliates under the Store Leases and, to
Seller's knowledge, there are no defaults by Seller or its Affiliates under any
of the Store Leases that would entitle the landlord thereunder to terminate
same. Seller or its Affiliate is the lessee acknowledged by lessor under the
Store Leases. Notwithstanding the foregoing, Seller makes no representation or
warranty as to whether any default would occur or whether any landlord consent
is needed under any Store Lease as a result of the transactions contemplated by
this Agreement.
(b) There are no leasing commissions that are payable (whether or not
yet due) by the Seller in connection with any Store Leases.
<PAGE>
SECTION 3.15. Sales Data. The sales revenue data of the Stores attached
hereto as Schedule 3.15, to the extent that they cover the period from May 29,
1997 to September 13, 1997, to the best of Seller's knowledge, have been derived
from Seller's accounting systems and records without alteration and are
materially accurate.
SECTION 3.16. Prescription Volume Data. The prescription volume data
previously provided to Buyer from Seller and attached hereto as Schedule 3.15,
to the extent that they cover the period from May 29, 1997 to August 23, 1997,
to the best of Seller's knowledge, have been derived from Seller's systems and
records without alteration and are materially accurate.
SECTION 3.17. Intellectual Property. To the best knowledge of Frank
Hall and William Prentice, there are no claims pending against Seller or its
Affiliates as of the date hereof alleging that the use of the Intellectual
Property by Seller or its Affiliate infringes the rights of any third party.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of Closing Date that:
SECTION 4.01. Corporate Existence and Power. Each of Fred's and Buyer
is a corporation duly incorporated, validly existing and in good standing under
the laws of Tennessee and has all corporate powers and all material governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by each of Fred's and Buyer of this Agreement and the consummation
of the transactions contemplated hereby are within the corporate powers of each
of Fred's and Buyer and have been duly authorized by all necessary corporate
action on the part of Fred's and Buyer. This Agreement constitutes a valid and
binding agreement of each of Fred's and Buyer enforceable against each of Fred's
and Buyer in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by each of Fred's and Buyer of this Agreement and the consummation
<PAGE>
of the transactions contemplated hereby require no material action by or in
respect of, or material filing with, any governmental body, agency or official
other than compliance with any applicable requirements of the HSR Act.
SECTION 4.04. Noncontravention. The execution, delivery and performance
by each of Fred's and Buyer of this Agreement and the consummation of the
transactions contemplated hereby do not and will not (i) violate the certificate
of incorporation or bylaws of either Fred's or Buyer or (ii) assuming compliance
with the matters referred to in Section 4.03, violate any applicable material
law, rule, regulation, judgment, injunction, order or decree.
SECTION 4.05. Financing. Buyer has, or will have prior to the Closing,
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to make payment of the Purchase Price and any other
amounts to be paid by it hereunder.
SECTION 4.06. Litigation. There is no action, suit, investigation or
proceeding pending against, or to the knowledge of Buyer threatened against,
Buyer before any court or arbitrator or any governmental body, agency or
official which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
SECTION 4.07. Finders' Fees. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Buyer who might be entitled to any fee or commission from Seller or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement.
ARTICLE 5
COVENANTS OF SELLER
Seller agrees that:
SECTION 5.01. Conduct of the Business. From the date hereof until the
applicable Effective Time, Seller shall conduct the business of the Stores in
the ordinary course consistent with past practice (including, without
limitation, maintaining inventory of a quantity (including seasonal variations),
quality and mix consistent with past practice; maintaining employment of
pharmacists and store managers at levels consistent with CVS' past practice; and
maintaining the real property subject to Store Leases in a physical condition
consistent with CVS' past practice subject to ordinary wear and tear). Without
limiting the generality of the foregoing, from the date hereof until the
applicable Effective Time, Seller will not (and will cause its Affiliates not
to):
<PAGE>
(a) with respect to the Stores acquire a material amount of assets
from any other Person;
(b) sell, lease, license or otherwise dispose of any Purchased Assets
except (i) pursuant to existing contracts or commitments or (ii) in the
ordinary course consistent with past practice;
(c) transfer management level employees or pharmacists of the Stores
to other stores operated by Seller or gratuitously dismiss employees of
the Stores;
(d) cancel any third-party prescription contracts of the Stores;
(e) agree or commit to do any of the foregoing; or
(f) take or agree or commit to take any action that would make any
representation and warranty of Seller hereunder inaccurate in any
respect at the applicable Effective Time.
SECTION 5.02. Access to Information. (a) From the date hereof until the
applicable Effective Time, Seller will (i) give Buyer, its counsel, financial
advisors, auditors and other authorized representatives reasonable access during
normal working hours to Store Lease documents relating to the Stores and records
(including insurance policies and records) relating to the Purchased Assets,
(ii) furnish to Buyer, its counsel, auditors and other authorized
representatives such information relating to the Stores and records relating to
the Purchased Assets (including insurance policies and records) as such Persons
may reasonably request and (iii) instruct their employees, counsel and
accountants to cooperate with Buyer in its investigation of the Stores and the
Purchased Assets. Any investigation pursuant to this Section shall be conducted
in such manner as not to interfere unreasonably with the conduct of the business
of Seller. Notwithstanding the foregoing, Buyer shall not have access to
personnel records of Seller relating to individual performance or evaluation
records, medical histories or other information, the disclosure of which, in
Seller's good faith judgment, would be illegal or could subject Seller to risk
of material liability.
(b) On and after the applicable Inventory Date, Seller will afford
Buyer and its agents upon reasonable notice reasonable access to its books and
records, information, employees and auditors to the extent necessary for Buyer
in connection with any reasonable business purpose relating to the Stores or the
Purchased Assets; provided that any such access by Buyer referred to in this
Section 5.02 shall not unreasonably interfere with the conduct of the business
of Seller. Buyer shall bear all of the out-of-pocket costs and expenses
(including, without limitation, attorneys' fees, but excluding reimbursement for
general overhead, salaries and employee benefits) incurred in connection with
the foregoing.
<PAGE>
(c) Notwithstanding anything to the contrary elsewhere in this
Agreement, Seller has not provided to Buyer and will not be required to provide
any information on profits, losses or margins relating to the Stores.
(d) Notwithstanding anything to the contrary elsewhere in this
Agreement, access to all Tax information shall be governed by Section 8.03.
SECTION 5.03. Non-Solicitation of Customers. Seller and its Affiliates
will not use the information contained in the materials specified in Section
2.01(d), including any data provided pursuant to the covenant in Section 5.05
below, in the business of Seller or its Affiliates to solicit customers or
business of the Stores, nor shall Seller or its Affiliates or employees sell or
transfer such data to any other Person or entity. Nothing in the immediately
preceding sentence will prohibit Seller or its Affiliates from placing general
advertisements directed towards the general public that do not refer to the
Stores or Drugs for Less customers.
SECTION 5.04. Restriction on CVS Recruiting. Seller and its Affiliates
will not recruit or hire employees of any of the Stores for a period of two
years following the Closing Date; provided, however, that nothing shall prevent
Seller or its Subsidiaries from recruiting or hiring those employees that (i)
Buyer does not hire within 5 days after the applicable Inventory Date, (ii)
Buyer terminates at any time after the applicable Inventory Date or (iii)
voluntarily terminate or do not accept employment with Buyer without having been
solicited by Seller, provided that Seller and its Affiliates may not during such
two year period recruit or hire pursuant to this clause (iii) any pharmacist or
store manager who was an employee of a Store at any time during the period from
the date hereof until the applicable Effective Time and who is seeking a
position in a geographic area within 50 miles of any Store unless, for purposes
of the proviso to this clause (iii), (x) the reason for such voluntary
termination or non-acceptance is that a member of such pharmacist's or store
manager's household desires to transfer employment or relocate for personal or
medical reasons and Buyer consents store manager by Seller or its Affiliate for
that reason (such consent not to be unreasonably withheld) or (y) a court of
competent jurisdiction determines that the restriction in the proviso to this
clause (iii) is illegal, unenforceable or against public policy.
SECTION 5.05. Conversion of Computer Files. In order to assist in and
facilitate the conversion of Seller's computer database of the prescription
files referred to in Section 2.01(d) to Buyer's database file format, at least
three weeks prior to the Initial Inventory Date, Seller shall provide 24 months
of the relevant convertible prescription data on a flat file together with a
hard copy indexed by Store. In the event Buyer does not complete the conversion
of the prescription data to its database format by the Closing Date, Seller will
give Buyer access to its PAL system for a reasonable period subject to measures
that preserve the security of Seller's systems and databases. Buyer shall use
its best efforts to complete the
<PAGE>
conversion of the prescription data as soon as practicable after the Closing
Date. Seller will ensure that the aforementioned data provided to Buyer will
include the following: UPC codes, retail prices, item descriptions (if
available) and department and merchandise types (if available). Such data will
be provided in the format technically referred to as ASCII.
SECTION 5.06. Assistance in Transfer of Licenses, Permits and
Registrations. Seller will provide reasonable assistance to Buyer in the
transfer of any transferable licenses and permits used in connection with the
operation of the Stores. Seller will also provide reasonable assistance to Buyer
in the assignment of any registrations of the Intellectual Property to the
extent such registrations are valid and in effect and owned and held alone by
Seller or its Subsidiaries. It is understood that (i) Buyer is responsible for
any expenses associated with any of the foregoing transfers or assignments and
(ii) completion of such transfers or such assignments is not a condition to
Closing hereunder.
SECTION 5.07. List of Vendors. Seller will compile, and provide to
Buyer on or prior to the Initial Inventory Date, a list of vendors to the
Stores, to the extent such vendors are known to Seller.
SECTION 5.08. Use of NABP Numbers and Assignment of Third-Party
Contracts. (a) Seller will permit Buyer to use current Drugs For Less NABP
numbers until such time that Buyer obtains its own NABP numbers, provided,
however, that Buyer will use its best efforts to obtain its own NABP numbers as
soon as practicable after the Closing Date.
(b) Seller will assign third-party contracts that are currently being
honored at the Stores to the extent that such contracts are assignable. It is
understood that Seller is restricted from contracting with these third-parties
in the same markets in which the Stores operate and that the assignment of these
third-party contracts is not a condition to Closing.
SECTION 5.09. Christmas Season Merchandise. For the upcoming 1997
Christmas season, Seller or its Affiliate will sell to Buyer, at Orient cost,
Christmas season merchandise sufficient to stock the Stores at Christmas season
levels.
ARTICLE 6
COVENANTS OF BUYER
Buyer agrees that:
SECTION 6.01. Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will, and will cause
their
<PAGE>
respective officers, directors, employees, accountants, counsel, consultants,
advisors and agents (the "Buyer Representatives") to, (a) hold in confidence and
not disclose, unless compelled to disclose by judicial or administrative process
or by other requirements of law, (i) all documents and information concerning
the Stores or Seller or its Affiliates furnished to Buyer or its Affiliates in
connection with the transactions contemplated by this Agreement or (ii) the
existence, subject matter or provisions of this Agreement or the background
circumstances to or status of the transactions contemplated hereby, and (b) not
use any such documents or information other than, prior to the Closing, in
connection with preparing for implementing the transactions contemplated hereby,
except in the case of (a) and (b) to the extent that such information can be
shown to have been (x) previously known on a nonconfidential basis by Buyer, (y)
in the public domain through no fault of Buyer or (z) later lawfully acquired by
Buyer from sources other than Seller; provided that Buyer may disclose such
information to the Buyer Representatives who have a need to know such
information in connection with the transactions contemplated by this Agreement
so long as such Persons are informed by Buyer of the confidential nature of such
information and are directed by Buyer to treat such information confidentially.
Buyer shall be responsible for the breach by any Buyer Representative of the
provisions of this Section 6.01. The obligation of Buyer and its Affiliates to
hold any such information in confidence shall be satisfied if they exercise the
same care with respect to such information as they would take to preserve the
confidentiality of their own similar information. If this Agreement is
terminated, Buyer and its Affiliates will, and will cause the Buyer
Representatives to, destroy or deliver to Seller, upon request, all documents
and other materials, and all copies thereof, obtained by Buyer or its Affiliates
or on their behalf from Seller or its Affiliates or representatives in
connection with this Agreement that are subject to such confidence.
SECTION 6.02. Access. On and after the applicable Effective Time, Buyer
will afford promptly to Seller and its agents upon reasonable notice reasonable
access to its properties, books, records, employees and auditors during normal
business hours to the extent necessary to permit Seller to determine any matter
relating to its rights and obligations hereunder or to any period ending on or
before the applicable Effective Time; provided that any such access by Seller
shall not unreasonably interfere with the conduct of the business of Buyer.
Seller will hold, and will cause its officers, directors, employees,
accountants, counsel, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning Buyer
or the Stores or the Purchased Assets provided to it pursuant to this Section.
<PAGE>
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Buyer and Seller agree that:
SECTION 7.01. Best Efforts; Further Assurances. (a) Subject to the
terms and conditions of this Agreement, Buyer and Seller will cooperate upon
each Inventory Date and will use their best efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. Seller and Buyer agree to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement and to
vest in Buyer good and marketable title to the Purchased Assets.
(b) Seller hereby constitutes and appoints, effective as of the
applicable Effective Time, Buyer and its successors and assigns as the true and
lawful attorney of Seller with full power of substitution in the name of Buyer,
or in the name of Seller but for the benefit of Buyer, (i) to collect for the
account of Buyer any items of Purchased Assets and (ii) to institute and
prosecute all proceedings which Buyer may in its sole discretion deem proper in
order to assert or enforce any right, title or interest in, to or under the
Purchased Assets, and to defend or compromise any and all actions, suits or
proceedings in respect of the Purchased Assets. Buyer shall be entitled to
retain for its own account any amounts collected pursuant to the foregoing
powers, including any amounts payable as interest in respect thereof.
SECTION 7.02. Certain Filings. Seller and Buyer shall cooperate with
one another (i) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, in
connection with the consummation of the transactions contemplated by this
Agreement and (ii) in taking such actions or making any such filings, furnishing
information required in connection therewith and seeking timely to take any such
actions. The applicable filing fees under the HSR Act in connection with the
transactions contemplated hereby shall be borne equally by Buyer and Seller.
SECTION 7.03. Public Announcements. Neither party shall, except as may
be required by applicable law or any listing agreement with any national
securities exchange, issue any press release or make any public statement with
respect to this Agreement or the transactions contemplated hereby without the
prior written consent of the other party.
SECTION 7.04. Trademarks; Tradenames. Except with respect to the name
"Drugs for Less" as contemplated by Section 2.01(e), after the Initial Inventory
Date Buyer and its Affiliates shall not use any marks, names or other
intellectual property
<PAGE>
or proprietary right owned or held for use by Seller or its Affiliates,
including without limitation the marks and names "CVS", "Revco" and "Big B"
(collectively or individually as the context requires, the "Seller Trademarks
and Tradenames"). Buyer agrees to use reasonable efforts to cease using the
Seller Trademarks and Tradenames on buildings and other fixed assets as soon as
possible, but in any event not later than 30 days after the Initial Inventory
Date.
SECTION 7.05. Notices of Certain Events. Seller and Buyer shall promptly
notify each other of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge threatened against, relating to or
involving or otherwise affecting Seller, Buyer, the Stores, the Store
Leases or the Purchased Assets that, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 3.06 or 4.06 as applicable or that relate to the consummation
of the transactions contemplated by this Agreement; and
(d) the damage or destruction by fire or other casualty of any
material Purchased Asset or in the event that any material Purchased
Asset becomes the subject of any proceeding or, to the knowledge of
Seller, threatened proceeding for the taking thereof or any part
thereof or of any right relating thereto by condemnation, eminent
domain or other similar governmental action.
SECTION 7.06. Casualty. If any Store after the Initial Inventory Date
and prior to the applicable Inventory Date suffers fire or other casualty damage
to such an extent that Buyer is incapable of operating such Store in the
ordinary course of its business, (i) the Store Lease of such Store shall not be
assigned to Buyer, (ii) the assets of such Store shall not be included in the
Purchased Assets, (iii) the transfer of such Store or the related assets shall
not constitute a condition to consummating the transactions contemplated hereby
and (iv) Buyer shall be entitled to a reduction in the Purchase Price allocated
with respect to the so damaged or destroyed Store in question in an amount equal
to the Premium divided by 17 (i.e. $79,411.76).
SECTION 7.07. Additional Post-closing Covenant Relating to Store Leases.
Buyer and Seller understand that certain Store Leases contain certain provisions
<PAGE>
relating to use restrictions. Buyer and Seller acknowledge that no third-party
consents relating to any such use restrictions will be sought prior to or in
connection with the Closing. Buyer and Seller hereby covenant and agree that if,
within two years after the Closing Date, a claim is made by any third-party
asserting any breach or violation of a use restriction (a "Third Party Claim")
under a Store Lease relating to or arising from the operation of the applicable
Store by Buyer in the ordinary course of Buyer's business consistent with past
practice, then Buyer and Seller shall take the following actions:
(a) Buyer and Seller shall use their reasonable best efforts
to resolve such Third Party Claim;
(b) Such reasonable best efforts shall include paying
reasonable amounts of money to resolve such Third Party Claim, and any such
payments shall be borne 70% by Seller and 30% by Buyer; and
(c) In the event such Third Party Claim cannot be resolved
through (a) and (b) above within a reasonable time after the claim arises, then
Buyer shall have the right to reject the relevant Store Lease and Seller,
immediately upon (A) the request of Buyer and (B) the vacation of occupancy of
the applicable Store and the restoration to Seller of the related Purchased
Assets, shall (1) pay Buyer for such rejected Store Lease an amount equal to the
sum of (x) the Premium divided by 17 (i.e. $79,411.76) and (y) the then net book
value of the fixed assets of such Store determined by the parties in good faith
in a manner consistent with that reflected in Schedule 2.01(c); and (2) shall
repurchase from Buyer the Inventory of such Store (of the types included in the
Purchased Assets at the applicable Effective Time) following a physical count
thereof in a manner consistent with Section 2.06 and valued as provided in
Schedule 2.06. Notwithstanding the foregoing, in such case Seller agrees to
repurchase only those fixed assets not in excess of those included in the
Purchased Assets at the applicable Effective Time.
ARTICLE 8
TAX MATTERS
SECTION 8.01. Tax Definitions. The following terms, as used herein, have
the following meanings:
"Code" means the Internal Revenue Code of 1986, as amended.
"Pre-Closing Tax Period" means (i) any Tax period ending on or before
the applicable Inventory Date with respect to each Store and its Purchased
Assets and (ii) with respect to a Tax period that commences before but ends
after the applicable
<PAGE>
Inventory Date, the portion of such period up to and including the applicable
Inventory Date.
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, license, registration, recording, documentary, conveyancing,
gains, withholding on amounts paid to or by the Seller, payroll, employment,
excise, severance, stamp, alcohol, tobacco, occupation, premium, property, or
other tax, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest, penalty, addition to tax or additional
amount imposed by any governmental authority (a "Taxing Authority") responsible
for the imposition of any such tax (domestic or foreign).
SECTION 8.02. Tax Matters. Seller hereby represents and warrants to Buyer
as of the Closing Date that:
(a) Seller has timely paid all Taxes, and all interest and penalties
due thereon and payable by it for the Pre-Closing Tax Period which will
have been required to be paid on or prior to the Closing Date, the
non-payment of which would result in a Lien on any Purchased Asset
(other than a Permitted Lien), would otherwise result in a Material
Adverse Effect on the Stores, the Store Leases or the Purchased Assets
after the Closing Date or would result in Buyer becoming liable or
responsible therefor. Seller agrees that all Taxes and all interest and
penalties thereon for the Pre-Closing Tax Period, if not paid, shall be
paid by Seller.
(b) Seller has established, in accordance with generally accepted
accounting principles applied on a basis consistent with that of
preceding periods, adequate reserves for the payment of, and will
timely pay all Tax liabilities, assessments, interest and penalties
which arise from or with respect to the Purchased Assets or the
operation of the Stores and are incurred in or attributable to the
Pre-Closing Tax Period, the non-payment of which would result in a Lien
on any Purchased Asset (other than a Permitted Lien), would result in a
Material Adverse Effect on the Stores, the Store Leases or the
Purchased Assets after the Closing Date or would result in Buyer
becoming liable therefor.
SECTION 8.03. Tax Cooperation; Allocation of Taxes. (a) Buyer and
Seller agree to furnish or cause to be furnished to each other, upon request, as
promptly as practicable, such information and assistance relating to the Stores
and the Purchased Assets (including, without limitation, access to books and
records) as is reasonably necessary for the filing of all Tax returns, the
making of any election relating to Taxes, the preparation for any audit by any
Taxing Authority, and the prosecution or defense of any claim, suit or
proceeding relating to any Tax. Seller and Buyer shall cooperate with each
other, as and to the extent reasonably requested by the
<PAGE>
other party, in the conduct of any audit or other proceeding relating to Taxes
involving the Purchased Assets or the Stores.
(b) All real property taxes, personal property taxes and similar ad
valorem obligations levied with respect to the Purchased Assets for a taxable
period which includes (but does not end on) the applicable Inventory Date
(collectively, the "Apportioned Obligations") shall be apportioned between
Seller and Buyer, with Seller bearing a portion of such taxes based on the
number of days in the tax period on and prior to the applicable Inventory Date
and Buyer bearing a portion of such taxes based on the number of days in the tax
period after the applicable Inventory Date. All determinations necessary to give
effect to the foregoing apportionment shall be made in a manner consistent with
the method historically applied by Revco for financial accounting to Buyer in
writing.
(c) Subject to Section 13.09, all excise, sales, use, value added,
registration stamp, recording, documentary, conveyancing, franchise, property,
transfer, gains and similar Taxes, levies, charges and fees (collectively,
"Transfer Taxes") incurred in connection with the transactions contemplated by
this Agreement shall be borne by Buyer. Buyer and Seller shall cooperate in
providing each other with any appropriate resale exemption certifications and
other similar documentation. The party that is required by applicable law to
make the filings, reports, or returns with respect to any applicable Transfer
Taxes shall do so, and the other party shall cooperate with respect thereto as
necessary.
(d) Taxes described in Sections 8.03(b) and (c) shall be timely paid
as provided by applicable law. The paying party shall be entitled to
reimbursement from the non-paying party in accordance with Sections 8.03(b) and
(c). The paying party shall promptly notify the non-paying party of the payment
of such tax by presenting a statement to the non-paying party setting forth the
amount of reimbursement to which it is entitled under Sections 8.03(b) or (c)
together with such supporting evidence as is reasonably necessary to calculate
the proration amount. The proration amount shall be paid by the non-paying party
to the paying party within 10 days after delivery of such statement. Any payment
not made within such time shall bear interest at the rate per annum determined,
from time to time, under the provisions of Section 6621(a)(2) of the Code for
each day until paid.
<PAGE>
ARTICLE 9
EMPLOYEE BENEFITS
SECTION 9.01. Employee Benefits Definitions. The following terms, as used
herein, having the following meanings:
"Employee Plans" means the plans referred to in the first sentence of
Section 9.02.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"Store Employee" means any employee of Seller whose employment relates
principally to one or more of the Stores.
SECTION 9.02. Employment and Benefits Representations. Seller hereby
represents and warrants to Buyer that:
(a) Schedule 9.02(a) lists each material "employee benefit plan", as
such term is defined in Section 3(3) of ERISA, which (i) is subject to
any provision of ERISA, (ii) is maintained, administered or contributed
to by Seller or any of its Affiliates (as defined below) and (iii)
covers any Store Employee (hereinafter referred to collectively as the
"Employee Plans"). Seller has provided Buyer with, or has caused to be
provided to Buyer, a list of Store Employees (including age, salary,
service and related data) as of the most recent practicable date. The
description of the Employee Plans furnished by Seller to Buyer is, to
Seller's knowledge, materially accurate.
(b) Schedule 9.02(b) includes a list of each material employment,
severance or other similar contract, arrangement or policy (written or
oral) and each plan or arrangement (written or oral) providing for
insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits or for deferred compensation,
profit-sharing, bonuses, stock options, stock appreciation or other
forms of incentive compensation or post-retirement insurance,
compensation or benefits which (i) is not an Employee Plan, (ii) is
entered into, maintained or contributed to, as the case may be, by
Seller or any of its Affiliates and (iii) covers any Store Employee.
Such contracts, plans and arrangements as are described above, copies
or descriptions of all of which have been made available or furnished
previously to Buyer are hereinafter referred to collectively as the
"Benefit Arrangements."
<PAGE>
SECTION 9.03. Employees; Employee Benefits. (a) Effective as of the
applicable Inventory Date, the employment of the Store Employees with Seller at
the Stores being inventoried shall be terminated. The Store Employees shall
cease as of the applicable Inventory Date to participate in the Employee Benefit
Plans and Benefit Arrangements, and the entitlement of such Employees and their
beneficiaries to benefits under such Plans and Arrangements shall be determined
in accordance with the terms of such Plans and Arrangements. Except as provided
in Section 9.03(b) below, the following shall be Excluded Liabilities:
(i) All liabilities arising under the Employee Benefit Plans and
Benefit Arrangements; and
(ii) All liabilities arising in connection with the transactions
described herein under the Worker Adjustment and Retraining
Notification Act with respect to any Store Employees who do not become
employees of Buyer or its Affiliate on or immediately after the
applicable Inventory Date.
On and after the applicable Inventory Date (and subject to the last sentence of
this paragraph), those Store Employees who are employed by Buyer or its
Affiliate shall be covered under such compensation and benefit plans and
arrangements as shall be established or maintained by Buyer or such Affiliate in
its discretion. All liabilities arising under such plans and arrangements shall
be Assumed Liabilities. Those Store Employees who are employed after the
applicable Inventory Date by Buyer or its Affiliate shall be granted credit for
service with Seller for all purposes, other than accrual of retirement benefits,
under the compensation and benefit plans and arrangements maintained by Buyer or
such Affiliate for its employees, provided that vacation credited shall not
result in a benefit accrual in excess of that otherwise applicable under the
relevant plan or arrangement of Buyer and its Affiliates. To the extent Buyer or
its Affiliate maintains medical, dental, life or disability benefit plans for
its employees, such plans shall waive any pre-existing conditions and exclusions
in respect of Store Employees (except those relating to length of service after
giving credit for length of service with Seller, and except for persons drawing
long-term disability benefits at the applicable Effective Time). For purposes of
the foregoing Section 9.03(a), "applicable Inventory Date" means the end of the
Benefit Transition Period (as defined in Section 9.03(b)) where the provisions
of Section 9.03(b) are applicable.
(b) From the applicable Effective Time until December 31, 1997 (the
"Benefit Transition Period"), Store Employees who are hired by Buyer as of or
after the applicable Effective Time and who are eligible for cover and are
covered
dental plans of Seller or its Affiliate as in effect immediately prior to the
applicable Effective Time will continue during the Benefit Transition Period to
have such coverage under the applicable medical or dental plan of Seller or its
Affiliate, and
<PAGE>
Seller or its Affiliate will provide claims administration services in
connection therewith consistent with its past practice. Buyer will the full
premium for all such Store Employees for such medical and dental coverage within
30 days after the end of the Benefit Transition Period, provided that the
employer portion of such premium payable by Buyer shall not exceed $50,000 in
the aggregate. Those employees not so covered under the applicable medical or
dental plan of Seller or its Affiliate and who become eligible during the
Benefit Transition Period for enrollment in Buyer's applicable plan will be
enrolled in Buyer's applicable plan.
SECTION 9.04. No Third Party Beneficiaries. No provision of this
Article shall create any third party beneficiary or other rights in any employee
or former employee (including any beneficiary or dependent thereof) of Seller or
of any of its Subsidiaries in respect of continued employment (or resumed
employment) with either Buyer or the Stores or any of their Affiliates and no
provision of this Article 9 shall create any such rights in any such Persons in
respect of any benefits that may be provided, directly or indirectly, under any
Employee Plan or Benefit Arrangement or any plan or arrangement which may be
established by Buyer or any of its Affiliates. No provision of this Agreement
shall constitute a limitation on rights to amend, modify or terminate after the
Closing Date any such plans or arrangements of Buyer or any of its Affiliates.
ARTICLE 10
CONDITIONS TO TRANSACTIONS HEREUNDER
SECTION 10.01. Conditions to Obligations of Buyer and Seller. The
obligations of Buyer and Seller to consummate the transactions contemplated
hereby are subject to the satisfaction of the following conditions:
(a) Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
(b) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the
transactions contemplated hereby.
SECTION 10.02. Conditions to Obligation of Buyer. The obligation of Buyer
to consummate the transactions contemplated hereby is subject to the
satisfaction of the following further conditions:
(a) (i) Seller shall have performed in all material respects all of
its obligations hereunder required to be performed by it on or prior to
the Initial Inventory Date (it being understood that this provision
will not limit Seller's obligation to perform under Section 5.01 until
the applicable Effective Time),
<PAGE>
(ii) the representations and warranties of Seller Agreement and in any
certificate or other writing delivered by Seller pursuant hereto shall
be true in all material respects at and as of the Initial Inventory
Date, as if made at and as of such date (it being understood that this
condition will be deemed satisfied with respect to any existing action,
suit, investigation or proceeding referred to in Section 3.06(b) so
long as such action, suit, investigation or proceeding has no
reasonable likelihood of success on the merits) and (iii) Buyer shall
have received a certificate signed by an appropriate officer of Seller
to the foregoing effect.
(b) As of the Initial Inventory Date, there shall be no Store as to
which any landlord consent required for the assignment of such Store
Lease in connection with the transactions contemplated hereby has not
been obtained.
(c) Buyer shall have received the legal opinion of Davis Polk &
Wardwell, special counsel to Seller, substantially in the form of
Exhibit 10.02(c) hereto.
(d) Buyer shall have received all documents it may reasonably request
relating to the existence of Seller and the authority of Seller for
this Agreement, all in form and substance reasonably satisfactory to
Buyer.
SECTION 10.03. Conditions to Obligation of Seller. The obligation of Seller
to consummate the transactions contemplated hereby is subject to the
satisfaction of the following further conditions:
(a) (i) Buyer shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to
the Initial Inventory Date, (ii) the representations and warranties of
Buyer contained in this Agreement and in any certificate or other
writing delivered by Buyer pursuant hereto shall be true in all
material respects at and as of the Initial Inventory Date, as if made
at and as of such date (it being understood that this condition will be
deemed satisfied with respect to any existing action, suit,
investigation or proceeding referred to in Section 4.06 so long as such
action, suit, investigation or proceeding has no reasonable likelihood
of success on the merits) and (iii) Seller shall have received a
certificate signed by an appropriate officer of Buyer to the foregoing
effect.
(b) Seller shall have received the legal opinion of Waring Cox, PLC,
special counsel to Buyer, substantially in the form of Exhibit 10.03(b)
hereto.
<PAGE>
(c) Seller shall have received all documents it may reasonably
request relating to the existence of Buyer and the authority of Buyer
for this Agreement, all in form and substance reasonably satisfactory
to Seller.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
SECTION 11.01. Survival. The representations and warranties of the
parties hereto contained in this Agreement or in any certificate or other
writing delivered pursuant hereto shall survive the Closing until three years
after the Closing Date; provided that (x) the representations and warranties
contained in Articles 8 or 9 shall survive until expiration of the statute of
limitations applicable to the matters covered thereby (giving effect to any
waiver, mitigation or extension thereof), if later and (y) the representations
and warranties of Seller in Section 3.12 shall survive the Closing until the
tenth anniversary of the Closing Date. Notwithstanding the preceding sentence,
any representation or warranty in respect of which indemnity may be sought under
this Agreement shall survive the time at which it would otherwise terminate
pursuant to the preceding sentence, if notice of the inaccuracy thereof giving
rise to such right of indemnity shall have been given to the party against whom
such indemnity may be sought prior to such time.
SECTION 11.02. Indemnification. (a) Seller hereby indemnifies Buyer and
its Affiliates against and agrees to hold each of them harmless from any and all
damage, loss, liability and expense (including, without limitation, reasonable
attorneys' fees and expenses in connection with any action, suit or proceeding)
("Damages") incurred or suffered by Buyer or any of its Affiliates arising out
of:
(i) any misrepresentation or breach of warranty, covenant or agreement
made or to be performed by Seller pursuant to this Agreement;
(ii) Environmental Liabilities;
(iii) Permitted Liens; or
(iv) any Excluded Liability (including any liability for a prescription
misfill prior to the applicable Effective Time), other than any
liability (including liabilities arising under Environmental Laws)
arising from any matter dealt with in Section 11.02(a)(i), 11.02(a)(ii)
or 11.02(a)(iii);
provided that (A) Seller shall not be liable under Section 11.02(a)(i) or
11.02(a)(iii) unless the aggregate amount of Damages with respect to all matters
referred to in Section 11.02(a)(i) and 11.02(a)(iii) exceeds $10,000 and then
only to the extent of such excess and (B) Seller's maximum aggregate liability
under Section 11.02(a)(i)
<PAGE>
and 11.02(a)(iii) shall not exceed the Purchase Price; provided further that, in
addition to the limitations of Section 11.01, Seller shall not be liable in
respect of any claim for indemnity under Section 11.02(a)(i) (as to any breach
of covenant or agreement hereunder), 11.02(a)(ii) or 11.02(a)(iii) unless notice
of such claim has been given to Seller (x) prior to the third anniversary of the
Closing Date in the case of a claim under Section 11.02(a)(i) or 11.02(a)(iii)
and (y) prior to the tenth anniversary of the Closing Date in the case of a
claim under Section 11.02(a)(ii).
(b) Buyer hereby indemnifies Seller and its Affiliates against and
agrees to hold each of them harmless from any and all Damages incurred or
suffered by Seller or any of its Affiliates arising out of:
(i) any misrepresentation or breach of warranty, covenant or agreement
made or to be performed by Buyer pursuant to this Agreement, or
(ii) any liability of Seller or any of its Affiliates arising out of,
or with respect to or in connection with any Assumed Liability
(including those relating to any Store Lease), other than any liability
arising from any matter dealt with in Section 11.02(b)(i);
provided that (A) Buyer shall not be liable under Section 11.02(b)(i) unless
the aggregate amount of Damages with respect to all matters referred to in
Section 11.02(b)(i) exceeds $10,000 and then only to the extent of such excess
and (B) Buyer's maximum aggregate liability under Section 11.02(b)(i) shall not
exceed the Purchase Price; provided further that, in addition to the limitations
of Section 11.01, Buyer shall not be liable in respect of any claim for
indemnity under Section 11.02(b)(i) (as to any breach of covenant or agreement
hereunder) unless notice of such claim has been given to Buyer prior to the
third anniversary of the Closing Date.
(c) No party shall be liable under this Article 11 for any incidental
or consequential damages arising from any breach of this Agreement or any claim
in connection with the transactions contemplated hereby.
(d) The party entitled to indemnification shall take all reasonable
steps to mitigate all indemnifiable liabilities and damages upon and after
becoming aware of any event which could reasonably be expected to give rise to
any liabilities that are indemnifiable herein.
(e) Notwithstanding anything else contained in this Agreement
(including Section 3.10) but subject to the next sentence, Seller shall have no
liability for or in respect of any product liability claim, arising after the
applicable Effective Time, relating to or in connection with any inventory
included in the Purchased Assets. Notwithstanding the foregoing, in the event
that, after the Closing Date, Buyer or its Affiliates incur or suffer any
product liabilities relating to or arising from the private
<PAGE>
label goods marked "Drugs For Less"referred to in Section 2.01(b) and included
in the Inventory sold hereunder, Seller shall, at Buyer's request, use
reasonable best efforts to pursue applicable manufacturer's warranty claims in
respect of such liabilities to the extent Seller or its Affiliates are covered
under such warranties in respect of such liabilities, and Seller agrees to pay
to Buyer any net amount Seller recovers under such applicable manufacturer
warranties in respect of such liabilities of Buyer or its Affiliates.
(f) The amount of any indemnity claim hereunder shall take into
account any insurance proceeds or other monetary compensation recovered or tax
benefit received by the indemnified party in connection with such indemnity
claim.
SECTION 11.03. Procedures. (a) The party seeking indemnification under
Section 11.02 (the "Indemnified Party") shall promptly give to the party against
whom indemnity is sought (the "Indemnifying Party") written notice of any matter
which the Indemnified Party has determined has given or could give rise to a
right of indemnification under this Agreement; provided that any failure to give
prompt notice shall not relieve the Indemnifying Party from its indemnification
obligations, except to the extent that it is damaged by such failure to give
prompt notice. If a claim by a third party is made against an Indemnified Party,
and if such Indemnified Party intends to seek indemnity with respect thereto
under this Agreement, the Indemnified Party shall promptly (and in any case
within 30 days of such claim being formally made) give the Indemnifying Party
written notice of such claim. The Indemnifying Party shall have the right to
assume and control the defense of such claims at its expense and through counsel
of its choice reasonably acceptable to the Indemnified Party. The Indemnified
Party shall be entitled, at its option and expense, to participate in the
defense of such claim through counsel of its choice reasonably acceptable to the
Indemnifying Party. If the Indemnifying Party exercises its right to undertake
the defense against any such claim, the Indemnified Party shall cooperate with
the Indemnifying Party in such defense and make available to the Indemnifying
Party, at the Indemnifying Party's expense, all pertinent records, materials and
information in its possession or under its control relating thereto as is
reasonably requested by the Indemnifying Party. The Indemnifying Party shall not
be liable under Section 11.02 for any settlement effected without its written
consent of any claim, litigation or proceeding in respect of which indemnity may
be sought. The Indemnifying Party may settle or compromise any claim for money
damages in respect of which indemnity may be sought by the Indemnified Party
hereunder so long as such settlement or compromise includes an unconditional
release of the Indemnified Party from such claim.
(b) The Indemnifying Party shall be subrogated to any and all
defenses, claims and setoffs which the Indemnified Party asserted or could have
asserted against the third party making a claim with respect to the claimed
indemnification. The Indemnified Party shall execute and deliver to the
Indemnifying Party such documents as may be reasonably necessary to establish by
way of subrogation the
<PAGE>
ability and right of the Indemnifying Party to assert such defenses, claims and
setoffs.
SECTION 11.04. Exclusivity. Except as specifically set forth in this
Agreement, and except for claims sounding in fraud or seeking specific
performance, effective as of the Closing each party waives any rights and claims
such party may have against the other party, whether in law or in equity,
relating to the Stores or the Purchased Assets or the transactions contemplated
hereby. The rights and claims waived by each party include, without limitation,
claims for breach of contract, breach of representation or warranty, negligent
misrepresentation and all other claims for breach of duty. After the Closing,
except for claims sounding in fraud or seeking specific performance, Article 11
will provide the exclusive remedy for any misrepresentation, breach of warranty,
covenant or other agreement or other claim arising out of this Agreement or the
transactions contemplated hereby. Without limiting the foregoing, except as
expressly provided in this Agreement, each party hereby waives all rights for
contribution or any other rights of recovery with respect to any Damages arising
under or related to Environmental Laws that it might have by statute or
otherwise against the other party.
ARTICLE 12
TERMINATION
SECTION 12.01. Grounds for Termination. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual written agreement of Seller and Buyer;
(b) by either Seller or Buyer if the Closing shall not have been
consummated on or before December 15, 1997; or
(c) by either Seller or Buyer if there shall be any law or regulation
that makes consummation of the transactions contemplated hereby illegal
or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree
or judgment of any court or governmental body having competent
jurisdiction.
The party desiring to terminate this Agreement pursuant to clauses
12.01(b) or 12.01(c) shall give notice of such termination to the other party.
SECTION 12.02. Effect of Termination. If this Agreement is terminated
as permitted by Section 12.01, such termination shall be without liability of
either party (or any stockholder, director, officer, employee, agent, consultant
or representative of such party) to the other party to this Agreement; provided
that if such termination
<PAGE>
shall result from the (i) willful failure of either party to fulfill a condition
to the performance of the obligations of the other party, (ii) failure to
perform a covenant of this Agreement or (iii) breach by either party hereto of
any representation or warranty or agreement contained herein, such party shall
be fully liable for any and all Damages incurred or suffered by the other party
as a result of such failure or breach. The provisions of Sections 6.01, 13.03,
13.05 and 13.06 shall survive any termination hereof pursuant to Section 12.01.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including electronically confirmed
facsimile transmission) and shall be given,
if to Seller or to CVS, to:
CVS Revco D.S., Inc. or CVS Corporation
One CVS Drive
Woonsocket, Rhode Island 02895
Attention: Zenon P. Lankowsky, Esq.
Fax: 401-765-7887
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Louis Goldberg, Esq.
Fax: (212) 450-4800
<PAGE>
if to Buyer or to Fred's, to:
Fred's Stores of Tennessee, Inc. or Fred's Inc.
4300 New Getwell Rd.
Memphis, TN 38118
Attention: Edwin C. Boothe
Fax: (901) 365-6815
with a copy to:
Fred's Stores of Tennessee, Inc. or Fred's Inc.
4300 New Getwell Road
Memphis, TN 38118
Attention: Charles Vail, Esq.
Fax: (901) 366-6772
and a copy to:
Waring Cox, PLC
50 North Front Street
Suite 1300
Memphis, TN 38103
Attention: Sam D. Chafetz, Esq.
Fax: (901) 543-8036
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or communication shall be deemed not to have
been received until the next succeeding business day in the place of receipt.
SECTION 13.02. Amendments and Waivers. (a) Any provision of this
Agreement (including any Exhibit or Schedule hereto) may be amended or waived
if, but only if, such amendment or waiver is in writing and is signed, in the
case of an amendment, by each party to this Agreement, 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. Except as provided in Article
11, the rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
<PAGE>
SECTION 13.03. Expenses. Except as otherwise expressly provided herein,
all costs and expenses incurred in connection with this Agreement shall be paid
by the party incurring such cost or expense.
SECTION 13.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that Buyer may transfer
or assign, in whole or from time to time in part, to one or more of its
Affiliates, the right to purchase all or a portion of the Purchased Assets, but
no such transfer or assignment will relieve Buyer of its obligations hereunder.
SECTION 13.05. Governing Law. Agreement shall be governed by and construed
in accordance with the law of the State of Tennessee, without regard to the
conflicts of law rules of such state.
SECTION 13.06. Jurisdiction. Except as otherwise expressly provided in
this Agreement, 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 Western District of Tennessee or any other Tennessee
State court sitting in Shelby County, 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 13.01 shall be deemed effective service of process on such party.
SECTION 13.07. Counterparts; Third Party Beneficiaries. 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 party hereto. No
provision of this Agreement is intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
SECTION 13.08. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written,
<PAGE>
between the parties with respect to the subject matter of this Agreement. No
representations or warranties have been by the parties except as set forth
herein.
SECTION 13.09. Bulk Sales Laws. Buyer and Seller each hereby waive
compliance by Seller and its Affiliates with the provisions of the "bulk sales",
"bulk transfer" or similar laws of any state. Seller agrees to indemnify and
hold Buyer harmless against any and all claims, losses, damages, liabilities,
costs and expenses incurred by Buyer or any of its Affiliates as a result of any
failure to comply with any such "bulk sales", "bulk transfer" or similar laws.
SECTION 13.10. Captions. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof.
SECTION 13.11. CVS Corporation Guaranty. CVS hereby unconditionally
guarantees (the "CVS Guaranty") to Buyer and its Affiliates (collectively, the
"Buyer Guaranteed Parties") that the indemnity obligations of Seller under
Article 11 shall be promptly performed and complied with in full when due in
accordance with the terms thereof. Upon failure by Seller to make the payments
required to be made by it under Article 11, for whatever reason, CVS shall
forthwith pay, within two business days of demand, the amount of the payments
not so made, by wire transfer to the account of Buyer designated to CVS in
writing for such purpose. Demand for payment hereunder shall be made in writing
signed by a duly authorized officer of any Buyer Guaranteed Party and be given
to CVS at the address and in the manner set forth in Section 13.01. CVS hereby
agrees that its obligations under this Section 13.11 shall be unconditional,
irrevocable and absolute and, without limiting the foregoing, shall not be
released, discharged or otherwise affected by, the invalidity, irregularity or
unenforceability of any provision of this Agreement, the absence of any action
to enforce the same, any provision of applicable law or regulation purporting to
prohibit the performance by Seller of its obligations under Article 11, any
extension, renewal, settlement, compromise, waiver or release in respect of any
obligation of Seller under any provision of this Agreement (except in conformity
therewith), any modification or amendment of or supplement to this Agreement
(except in conformity therewith), any change in the corporate existence,
structure or ownership of Seller or CVS, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting Seller or CVS or its assets
or any resulting release or discharge of any obligation under this Agreement,
any waiver or consent by any Buyer Guaranteed Party with respect to any
provisions of this Agreement, the recovery of any judgment against Seller or any
action to enforce the same, the existence of any claim, set-off or other rights
which Seller may have at any time against any Buyer Guaranteed Party, whether in
connection herewith or with any unrelated transaction (provided that nothing
herein shall prevent the assertion of any such claim, set-off or other rights by
separate suit or counterclaim), or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of Seller. CVS hereby
waives diligence, presentment, demand of payment (other than the demand referred
to above), or filing of claims with a court in the
<PAGE>
event of insolvency or bankruptcy of Seller, any right to require a proceeding
first against Seller, protest, notice and all demands (other than the demand
referred to above) whatsoever and covenants that this CVS Guaranty will not be
discharged except by complete performance of the obligations of Seller under
Article 11 or of this CVS Guaranty. If any Buyer Guaranteed Party is required by
any court or otherwise to return to CVS or Seller, or any receiver, trustee,
assignee, liquidator, sequestrator or similar official charged with maintaining
possession or control over property for one or more creditors acting in relation
to CVS or Seller, any amount paid by CVS or Seller to such Buyer Guaranteed
Party, this CVS Guaranty, to the extent theretofore discharged, shall be
reinstated in full force and effect. CVS hereby confirms its right of
subrogation in relation to the Buyer Guaranteed Parties in respect of any
obligations guaranteed hereby, but agrees to delay the enforceability of such
right until all obligations of Seller under Article 11 have been satisfied.
hereby makes to Buyer as of the date hereof and as of the Closing Date the
representations and warranties as to CVS set forth in Sections 3.01 through
3.04.
SECTION 13.12. Fred's Inc Guaranty. Fred's hereby unconditionally
guarantees (the "Fred's Guaranty") to Seller and its Affiliates (collectively,
the "Seller Guaranteed Parties") that the indemnity obligations of Buyer under
Article 11 as to Assumed Liabilities referred to in 2.03(a) (the "Lease
Obligations") shall be promptly performed and complied with in full when due in
accordance with the terms thereof. Upon failure by Buyer to make the payments
required to be made by it under Article 11 as to any Lease Obligation, for
whatever reason, Fred's shall forthwith pay, within two business days of demand,
the amount of the payments not so made, by wire transfer to the account of the
appropriate landlord under the applicable Store Lease designated to Fred's in
writing for such purpose (or to Seller or its Affiliate so designated in
reimbursement of it for such payments already made to such landlord). Demand for
payment hereunder shall be made in writing signed by a duly authorized officer
of any Seller Guaranteed Party and be given to Fred's at the address and in the
manner set forth in Section 13.01. Fred's hereby agrees that its obligations
under this Section 13.12 shall be unconditional, irrevocable and absolute and,
without limiting the foregoing, shall not be released, discharged or otherwise
affected by, the invalidity, irregularity or unenforceability of any provision
of this Agreement or any Store Lease, the absence of any action to enforce the
same, any provision of applicable law or regulation purporting to prohibit the
performance by Buyer of its obligations under Article 11 as to any Lease
Obligation or under any Store Lease, any extension, renewal, settlement,
compromise, waiver or release in respect of any obligation of Buyer under any
provision of this Agreement or any Store Lease (except in conformity therewith),
any modification or amendment of or supplement to this Agreement or any Store
Lease (except in conformity therewith), any change in the corporate existence,
structure or ownership of Buyer or Fred's, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting Buyer or Fred's or its
assets or any resulting release or discharge of any obligation under this
Agreement or any Store Lease, any waiver or consent by any Seller Guaranteed
Party with respect to any provisions of this Agreement or any Store
<PAGE>
Lease, the recovery of any judgment against Buyer or any action to enforce the
same, the existence of any claim, set-off or other rights which Buyer may have
at any time against any Seller Guaranteed Party, whether in connection herewith
or with any unrelated transaction (provided that nothing herein shall prevent
the assertion of any such claim, set-off or other rights by separate suit or
counterclaim), or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of Buyer. Fred's hereby waives
diligence, presentment, demand of payment (other than the demand referred to
above), or filing of claims with a court in the event of insolvency or
bankruptcy of Buyer, any right to require a proceeding first against Buyer,
protest, notice and all demands (other than the demand referred to above)
whatsoever and covenants that this Fred's Guaranty will not be discharged except
by complete performance of the obligations of Buyer under Article 11 as to Lease
Obligations or of this Fred's Guaranty. If any Seller Guaranteed Party is
required by any court or otherwise to return to Fred's or Buyer, or any
receiver, trustee, assignee, liquidator, sequestrator or similar official
charged with maintaining possession or control over property for one or more
creditors acting in relation to Fred's or Buyer, any amount paid by Fred's or
Buyer to such Seller Guaranteed Party, this Fred's Guaranty, to the extent
theretofore discharged, shall be reinstated in full force and effect. Fred's
hereby confirms its right of subrogation in relation to the Seller Guaranteed
Parties in respect of any obligations guaranteed hereby, but agrees to delay the
enforceability of such right until all obligations of Buyer under Article 11 as
to Lease Obligations have been satisfied. as of the date hereof and as of the
Closing Date the representations and warranties as to Fred's set forth in
Sections 4.01 through 4.04.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CVS REVCO D.S., INC.
By: /s/ Thomas M. Ryan
Name: Thomas M. Ryan
Title: Vice Chairman and Chief
Operating Officer
CVS CORPORATION (as to Section
13.11only)
By: /s/ Thomas M. Ryan
Name: Thomas M. Ryan
Title: Vice Chairman and Chief
Operating Officer
FRED'S STORES OF TENNESSEE, INC.
By: /s/ Edwin C. Boothe
Name: Edwin C. Boothe
Title: Vice President
FRED'S, INC. (as to Section 13.12 only)
By: /s/ Edwin C. Boothe
Name: Edwin C. Boothe
Title: Executive Vice President
Store/Pharmacy Operations
<PAGE>
FRED'S, INC.
4300 NEW GETWELL ROAD
MEMPHIS, TENNESSEE 38118
November 1, 1997
Thomas M. Ryan
CVS Revco D.S., Inc.
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Re: Asset Purchase Agreement Dated as of October 10, 1997 between CVS REVCO
D.S., INC. and FRED'S STORES OF TENNESSEE, INC. ("Agreement")
Dear Mr. Ryan:
Notwithstanding Section 13.08 of the Agreement, it is the intention of
the parties thereto to restate certain sections of the Agreement as set forth in
this letter ("Letter"). All capitalized terms used in this Letter shall have the
meanings ascribed to such terms in the Agreement which is incorporated herein by
reference.
The following amendments to the Agreement are hereby effected:
1. Article 3 of the Agreement is hereby amended by adding the following
Section 3.18 thereto:
"SECTION 3.18. Assignment of Store Leases. Each applicable Subsidiary
of Seller has the corporate power and authority to execute and deliver the
instruments of assignment and assumption relating to the Store Leases (the
"Lease Assignments"). At the Closing, each Lease Assignment shall have been duly
authorized, executed and delivered by the Subsidiaries of Seller that are
parties thereto."
2. Section 5.04 of the Agreement is hereby amended to add the following
sentence at the end
thereof:
"Except as set forth in this Section 5.04, for a period of two years
following the Closing Date, Seller and its Affiliates will not recruit or hire
any employees of the Buyer or its Affiliates who were not Store Employees prior
to the Closing Date and who Seller encountered during the course of the
negotiations and consummation of the transactions contemplated by this Agreement
unless a court of competent jurisdiction determines that the restriction in this
sentence is illegal, unenforceable or against public policy."
3. The second sentence of Section 5.08(b) of the Agreement shall be
restated as follows:
"It is understood that Seller is not restricted from contracting with
these third-parties in the same markets in which the Stores operate and that the
assignment of these third-party contracts is not a condition to Closing."
4. Section 5.05 of the Agreement shall be restated in its entirety as
follows:
<PAGE>
November 1, 1997
Page 2
"SECTION 5.05. Conversion of Computer Files. (a) In order to assist in
and facilitate the conversion of Seller's computer database of the prescription
files referred to in Section 2.01(d) to Buyer's database file format, at least
three weeks prior to the Initial Inventory Date, Seller shall provide to Buyer
24 months of the relevant convertible prescription data on a flat file (the
"Initial Data"). Seller also agrees to provide to Buyer on fiche, no later than
October 31, 1997, the applicable prescription data referred to in Section
2.01(d) that is on Seller's PAL system and that is older than the Initial Data.
A copy of this fiche will be retained by Seller.
(b) The parties understand that the day immediately prior to the
applicable Inventory Date for a Store will be the last day on which
prescriptions will be filled through Seller's PAL system for that Store. To
accomplish this, the following procedures and arrangements will be implemented.
(i) By two days before the Inventory Date for a Store, Fred's dispensing system
will be installed at that Store with the Initial Data loaded. At this point, a
few weeks of data will be missing (the "Delta Data"), depending on when the
Initial Data was extracted from Seller's system and provided to Buyer for
conversion. After the Store closes on this day, Seller will extract the Delta
Data from its PAL system and transmit it to Infowerks (the computer firm engaged
by Buyer to assist in the conversion of the data), who shall convert the Delta
Data and transmit it to Buyer's dispensing system in the Store. After a Store
closes on the day prior to its Inventory Date, Seller will re-extract the Delta
Data from its PAL system (which will include that day's Delta Data as well as
the Delta Data previously provided) and transmit such Delta Data to Inforwerks.
Infowerks will convert this Delta Data and transmit it to Buyer's dispensing
system in the Store. If for any reason the Delta Data is not converted and added
to Buyer's dispensing system in the Store, Buyer will manually enter the missing
Delta Data on to its system before the opening of business on the applicable
Inventory Date. The parties agree that on the applicable Inventory Date Store
pharmacists will use Buyer's dispensing system to fill prescriptions, and that
at this time two years of completely current prescription data will be available
on Buyer's dispensing system. It is understood that Seller's PAL system will not
be accessible to Buyer.
(c) Within five days following each applicable Inventory Date, Seller
will send to the relevant Store hard copy versions of the relevant data for that
Store sorted alphabetically by patient name. Hard copy of patient and
prescription comments will also be sent to the Store.
(d) Seller will ensure that the prescription data referred to in this
Section will include the following: UPC codes, retail prices, item descriptions
(if available), and department and merchandise types (if available)."
Except as specifically modified hereby, all other terms, conditions and
restrictions set forth in the Agreement shall remain in full force and effect as
originally stated. To the extent the terms of this Letter conflict with the
terms of the Agreement, the terms of this Letter shall govern.
This Letter 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. This Letter shall become effective, as of the date set
forth above, upon the execution by the parties of at least one counterpart
hereof, and it shall not be necessary that any single counterpart bear the
signatures of all parties.
The execution and delivery of this Letter by delivery of a facsimile
copy bearing the facsimile signature of a party hereto shall constitute a valid
and binding execution and delivery of this Letter by such party, and such
facsimile copies shall constitute enforceable original documents.
<PAGE>
November 1, 1997
Page 3
Sincerely,
FRED'S STORES OF TENNESSEE, INC.
By:
Richard B. Witaszak,
Vice President
FRED'S, INC.
By:
Richard B. Witaszak
Vice President
The terms of this Letter are agreed to and accepted this ______ day of
November, 1997.
CVS REVCO D.S., INC.
By:
Its:
CVS CORPORATION
By:
Its:
cc: Samuel D. Chafetz, Esq.
Louis Goldberg, Esq.
RSW/rc
<PAGE>
FOR IMMEDIATE RELEASE Contact: Richard B. Witaszak
Chief Financial Officer
(901)362-3733, Ext. 2217
FRED'S COMPLETES ACQUISITION OF 17 STORES FROM CVS CORPORATION
------------------------------
COMPANY ANNOUNCES FIVE-FOR-FOUR STOCK SPLIT AND A
25% INCREASE IN THE QUARTERLY DIVIDEND
MEMPHIS, Tennessee (November 24, 1997) - Fred's, Inc. (Nasdaq/NM:FRED) today
said that it has completed the previously announced acquisition of 17 stores
from CVS Corporation in a cash transaction. The acquisition strengthens Fred's
presence in Alabama, Georgia, Mississippi, and Tennessee, where these stores are
located.
Michael J. Hayes, Fred's President and Chief Executive Officer, noted
that the stores involved in this transaction currently generate annual sales in
excess of $50 million. He said the acquired stores should begin to have a
positive impact on Fred's earnings in the first quarter of 1998.
Separately, the Company announced that its Board of Directors has
approved a five-for-four stock split, to be effected as a 25% stock dividend.
The new shares - one additional share of common stock for every four shares
currently held by stockholders - will be distributed on December 19, 1997, to
stockholders of record on December 5, 1997. Fred's currently has 9.4 million
common shares outstanding. Cash will be paid in lieu of fractional shares.
Fred's also announced that its Board has declared a quarterly cash
dividend of $.05 per share, payable on the same record date as the stock split
for both old and new shares. This represents an increase of 25% from the
previous rate of $.04 per share per quarter, adjusted for the stock split. The
higher dividend will be paid on December 19, 1997, together with the stock
dividend.
Commenting on the announcement, Hayes said, "It is gratifying that the
Company's continued growth and its strong financial position has enabled the
Board to declare this split and increase the cash dividend rate. We are
confident that the additional shares outstanding will benefit stockholders by
increasing the trading activity, visibility and liquidity of our shares."
Fred's, Inc. operates 258 discount general merchandise stores in the
southeastern United States. The Company also markets goods and services to 31
franchised Fred's stores.
<PAGE>
FOR IMMEDIATE RELEASE Contact: Richard B. Witaszak
Chief Financial Officer
(901)362-3733, Ext. 2217
FRED'S AGREES TO ACQUIRE 17 STORES FROM CVS CORPORATION
MEMPHIS, Tennessee (October 14, 1997) - Fred's, Inc. (Nasdaq/NM:FRED) today
announced that it has agreed to acquire 17 stores from CVS Corporation in a cash
transaction. Terms of the definitive agreement, which remains subject to the
completion of due diligence and approval by the Federal Trade Commission, were
not disclosed.
Commenting on the announcement, Michael J. Hayes, President and Chief
Executive Officer, said, "This acquisition makes an excellent addition to our
store and pharmacy expansion program, since all of the stores involved are
located in our current geographic markets. We expect to close the transaction
and assume operations during our fourth quarter." Hayes noted that this
acquisition will be incremental to the Company's previously announced store
opening targets for fiscal 1997.
The 17 stores involved in this transaction currently generate on
average $3 to $4 million each in annual store and pharmacy related sales. The
Company believes the acquired stores will have a positive impact on its earnings
by the first quarter of 1998.
Fred's, Inc. operates 239 discount general merchandise stores in the
southeastern United States. The Company also markets goods and services to 31
franchised Fred's stores.
<PAGE>
