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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): February 8, 1998
ARBOR DRUGS, INC.
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(Exact Name of Registrant as Specified in its Charter)
MICHIGAN
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(State or Other Jurisdiction of Incorporation)
0-14491 38-2054345
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(Commission File Number) (I.R.S. Employer Identification No.)
3331 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084
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(Address of Principal Executive Offices) (Zip Code)
(248) 643-9420
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(Registrant's Telephone Number, Including Area Code)
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(Former Name or Former Address, if Changed Since Last Report)
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NYFS01...:\08\16508\0003\139\FRM2098L.170
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Items 1-4. Not Applicable.
Item 5. Other Events.
On February 8, 1998, Arbor Drugs, Inc., a Michigan corporation
(the "Company"), entered into an Agreement and Plan of Merger, dated as of
February 8, 1998 (the "Merger Agreement"), with CVS Corporation, a Delaware
corporation ("CVS"), and Red Acquisition, Inc., a Michigan corporation and a
wholly-owned subsidiary of CVS ("Merger Sub"). The Merger Agreement provides
that, following the satisfaction or waiver of the conditions set forth therein,
Merger Sub will be merged with and into the Company (the "Merger"). The Merger
Agreement is attached hereto as Exhibit 2.1 and incorporated herein by
reference.
Pursuant to the Merger Agreement, at the effective time of the
Merger, each share of common stock, par value $.01 per share, of the Company
(the "Company Common Stock"), other than shares owned by CVS or any of its
subsidiaries, will be converted into the right to receive a number of shares of
common stock, par value $.01 per share, of CVS ("CVS Common Stock") determined
by dividing $23 by the average closing price per share of the CVS Common Stock
on the New York Stock Exchange, Inc. for the ten trading days selected by lot
out of the twenty trading days ending on and including the fifth trading day
preceding the date of the meeting of shareholders of the Company at which the
Merger Agreement will be considered (the "Exchange Ratio"); provided that the
Exchange Ratio will not be less than .3182 or more than .3660. The foregoing
description of the Merger and the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement.
In connection with the execution of the Merger Agreement, Eugene
Applebaum, his wife and certain family trusts for which Mrs. Applebaum serves as
trustee (the "Applebaum Shareholders") entered into an Option and Voting
Agreement with CVS. Pursuant to the agreement, the Applebaum Shareholders, the
beneficial owners of approximately 24% of the outstanding Company Common Stock,
agreed to vote their shares in favor of the approval and adoption of the Merger
Agreement and granted CVS an option, exercisable under certain circumstances, to
purchase their shares of Company Common Stock.
On February 9, 1998, CVS and the Company issued a joint press
release (the "Press Release") announcing the
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execution of the Merger Agreement. The Press Release is attached hereto as
Exhibit 99 and is incorporated hereby reference.
Item 6. Not Applicable.
Item 7. Financial Statements
Pro Forma Financial Information and Exhibits.
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(a)-(b) Not Applicable.
(c) Exhibits Required by Item 601 of Regulation S-K.
2.1 Agreement and Plan of Merger, dated as of February 8,
1998, among Arbor Drugs, Inc., CVS Corporation and Red
Acquisition, Inc.
99 Press Release issued by CVS Corporation and Arbor Drugs,
Inc. dated February 9, 1998.
Item 8. Not Applicable.
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SIGNATURE
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.
Dated: February 10, 1998
ARBOR DRUGS, INC.
By: /s/ Gilbert C. Gerhard
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Name: Gilbert C. Gerhard
Title: Sr. Vice President
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EXHIBIT INDEX
Exhibit No. Description
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2.1 Agreement and Plan of Merger, dated as of February 8,
1998, among Arbor Drugs, Inc., CVS Corporation and Red
Acquisition, Inc.
99 Press Release issued by CVS Corporation and Arbor Drugs,
Inc. dated February 9, 1998.
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
dated as of
February 8, 1998
among
CVS CORPORATION,
ARBOR DRUGS, INC.
AND
RED ACQUISITION, INC.
NYFS01...:\08\16508\0003\139\AGR2098U.460
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TABLE OF CONTENTS
Page
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ARTICLE 1
THE MERGER............................ 2
SECTION 1.01. The Merger................................... 2
SECTION 1.02. Conversion of Shares......................... 2
SECTION 1.03. Surrender and Payment........................ 4
SECTION 1.04. Stock Options................................ 6
SECTION 1.05. Fractional Shares............................ 8
SECTION 1.06. Adjustments.................................. 9
ARTICLE 2
THE SURVIVING CORPORATION.................... 9
SECTION 2.01. Articles of Incorporation.................... 9
SECTION 2.02. Bylaws....................................... 10
SECTION 2.03. Directors and Officers....................... 10
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY.............10
SECTION 3.01. Organization and Power....................... 10
SECTION 3.02. Corporate Authorization...................... 11
SECTION 3.03. Governmental Authorization................... 11
SECTION 3.04. Non-contravention............................ 12
SECTION 3.05. Capitalization of Company.................... 13
SECTION 3.06. Capitalization of Subsidiaries............... 14
SECTION 3.07. SEC Filings.................................. 14
SECTION 3.08. Financial Statements......................... 15
SECTION 3.09. Disclosure Documents......................... 15
SECTION 3.10. Information Supplied......................... 16
SECTION 3.11. Absence of Certain Changes................... 16
SECTION 3.12. No Undisclosed Material
Liabilities.................................. 18
SECTION 3.13. Litigation................................... 19
SECTION 3.14. Taxes........................................ 19
SECTION 3.15. Employee Benefit Plans; ERISA................ 20
SECTION 3.16. Compliance with Laws; No Default;
No Non-Competes.............................. 23
SECTION 3.17. Finders' Fees................................ 23
SECTION 3.18. Environmental Matters........................ 24
SECTION 3.19. Assets....................................... 25
SECTION 3.20. Opinion of Financial......................... 25
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SECTION 3.21. Transactions with Affiliates................. 26
SECTION 3.22. Pooling; Tax Treatment....................... 26
SECTION 3.23. Pooling Letter............................... 26
SECTION 3.24. Takeover Statutes............................ 26
SECTION 3.25. Affiliates................................... 27
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT............. 27
SECTION 4.01. Organization and Power....................... 27
SECTION 4.02. Corporate Authorization...................... 28
SECTION 4.03. Governmental Authorization................... 28
SECTION 4.04. Non-contravention............................ 29
SECTION 4.05. Capitalization of Parent..................... 29
SECTION 4.06. Capitalization of Subsidiaries............... 31
SECTION 4.07. SEC Filings.................................. 31
SECTION 4.08. Financial Statements......................... 32
SECTION 4.09. Disclosure Documents......................... 32
SECTION 4.10. Information Supplied......................... 33
SECTION 4.11. Absence of Certain Changes................... 33
SECTION 4.12. No Undisclosed Material
Liabilities.................................. 35
SECTION 4.13. Litigation................................... 35
SECTION 4.14. Taxes........................................ 36
SECTION 4.15. Employee Benefits, ERISA..................... 37
SECTION 4.16. Compliance with Laws; No Default;
No Non-Competes.............................. 38
SECTION 4.17. Finders' Fees................................ 39
SECTION 4.18. Environmental Matters........................ 39
SECTION 4.19. Assets....................................... 40
SECTION 4.20. Accounting Matters........................... 40
SECTION 4.21. Pooling Letter............................... 41
SECTION 4.22. Takeover Statutes............................ 41
SECTION 4.23. Merger Subsidiary............................ 41
ARTICLE 5
COVENANTS............................ 41
SECTION 5.01. Conduct of Company........................... 41
SECTION 5.02. Conduct of Parent............................ 44
SECTION 5.03. Stockholder Meeting; Proxy
Materials; Form S-4.......................... 46
SECTION 5.04. Access to Information........................ 47
SECTION 5.05. No Solicitation.............................. 48
SECTION 5.06. Notices of Certain Events.................... 50
SECTION 5.07. Reasonable Best Efforts...................... 51
SECTION 5.08. Cooperation.................................. 52
SECTION 5.09. Public Announcements......................... 52
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SECTION 5.10. Further Assurances........................... 53
SECTION 5.11. Affiliates; Registration Rights.............. 53
SECTION 5.12. Director and Officer Liability............... 53
SECTION 5.13. Obligations of Merger Subsidiary............. 55
SECTION 5.14. Listing of Stock............................. 55
SECTION 5.15. Antitakeover Statutes........................ 55
SECTION 5.16. Tax and Accounting Treatment................. 55
SECTION 5.17. Employee Benefits............................ 56
SECTION 5.18. Parent Board of Directors.................... 57
SECTION 5.19. Combined Financial Results................... 57
SECTION 5.20. Charitable Commitment........................ 57
SECTION 5.21. Parent's Registration Rights................. 58
ARTICLE 6
CONDITIONS TO THE MERGER..................... 58
SECTION 6.01. Conditions to the Obligations of
Each Party................................... 58
SECTION 6.02. Conditions to the Obligations of
Parent and Merger Subsidiary................. 59
SECTION 6.03. Conditions to the Obligations of
Company...................................... 60
ARTICLE 7
TERMINATION........................... 61
SECTION 7.01. Termination.................................. 61
SECTION 7.02. Effect of Termination........................ 62
ARTICLE 8
MISCELLANEOUS.......................... 63
SECTION 8.01. Notices...................................... 63
SECTION 8.02. Entire Agreement; Non-survival of
Representations and Warranties;
Third Party Beneficiaries.................... 64
SECTION 8.03. Amendments; No Waivers....................... 65
SECTION 8.04. Expenses..................................... 65
SECTION 8.05. Successors and Assigns....................... 66
SECTION 8.06. Governing Law................................ 66
SECTION 8.07. Jurisdiction................................. 66
SECTION 8.08. Counterparts; Effectiveness.................. 67
SECTION 8.09. Interpretation............................... 67
SECTION 8.10. Severability................................. 67
SECTION 8.11. Specific Performance......................... 68
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Schedules
Exhibit A Option and Voting Agreement
Exhibit B Registration Rights Agreement
Exhibit C-1 Affiliate's Letter Relating to Pooling
(Company)
Exhibit C-2 Affiliate's Letter Relating to Pooling
(Parent)
Exhibit C-3 Affiliate's Letter (Company)
Exhibit D Form of Tax Certificate (Parent)
Exhibit E Form of Tax Certificate (Company)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 8, 1998 among CVS
Corporation, a Delaware corporation ("PARENT"), Arbor Drugs, Inc., a Michigan
corporation ("COMPANY"), and Red Acquisition, Inc., a Michigan corporation and a
wholly-owned subsidiary of Parent
("MERGER SUBSIDIARY").
WHEREAS, respective Boards of Directors of Parent and Company have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the acquisition of Company by Parent on the terms
and conditions set forth herein;
WHEREAS, for United States federal income tax purposes, it is
intended that the Merger contemplated by this Agreement qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the rules and regulations promulgated
thereunder;
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a pooling of interests under United States generally accepted
accounting principles ("GAAP"); and
WHEREAS, as a condition and inducement to Parent entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent is entering into an Option and
Voting Agreement with certain stockholders of Company ("SELLING STOCKHOLDERS")
in the form of Exhibit A hereto (the "OPTION AGREEMENT") pursuant to which,
among other things, each Selling Stockholder has agreed (i) under certain
circumstances to sell the shares of Company Common Stock owned by such Selling
Stockholder to Parent and (ii) to vote the shares of Company Common Stock owned
by such Selling Stockholder in favor of this Agreement and the Merger provided
for herein;
NOW, THEREFORE, in consideration of the promises and the respective
representations, warranties, covenants, and agreements set forth herein, the
parties hereto agree as follows:
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ARTICLE 1
THE MERGER
SECTION 1.01. The Merger. (a) Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as hereinafter
defined), Merger Subsidiary shall be merged (the "MERGER") with and into Company
in accordance with the Michigan Business Corporation Act (the "MICHIGAN LAW"),
whereupon the separate existence of Merger Subsidiary shall cease, and Company
shall continue as the surviving corporation (the "SURVIVING CORPORATION").
(b) Upon the terms and subject to the conditions of this Agreement,
the closing of the Merger (the "CLOSING") shall take place at 10:00 a.m. on a
date (the "CLOSING DATE") which shall be no later than the second business day
after satisfaction of the conditions set forth in Article 6, other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction of those conditions at the Closing, at the offices of Davis
Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017, unless another
time, date or place is agreed to in writing by the parties hereto.
(c) Upon the Closing, Company and Merger Subsidiary will file a
certificate of merger with the Michigan Department of Consumer and Industry
Services and make all other filings or recordings required by Michigan Law in
connection with the Merger. The Merger shall become effective at such time as
the certificate of merger is duly filed with the Michigan Department of Consumer
and Industry Services or at such later time as is agreed by Parent and Company
and specified in the certificate of merger (the "EFFECTIVE TIME").
(d) The Merger shall have the effects set forth in Section 450.1724
of the Michigan Law.
SECTION 1.02. Conversion of Shares. (a) At the Effective Time:
(i) each share of Common Stock, par value $0.01 per share,
of Company ("COMPANY COMMON STOCK") owned by Parent or any
Subsidiary (as hereinafter defined) of Parent immediately prior to
the Effective Time shall be canceled, and no
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Parent Common Stock or other consideration shall be delivered in
exchange therefor;
(ii) each share of common stock of Merger Subsidiary
("MERGER SUBSIDIARY COMMON STOCK") outstanding immediately prior to
the Effective Time shall be converted into and become one share of
common stock of the Surviving Corporation and shall constitute the
only outstanding shares of capital stock of the Surviving
Corporation; and
(iii) each share (each, a "SHARE" and collectively, the
"SHARES") of Company Common Stock outstanding immediately prior to
the Effective Time shall, except as otherwise provided in Section
1.02(a)(i), be converted into the right to receive the number of
shares of fully paid and non-assessable Common Stock, par value
$0.01 per share ("PARENT COMMON STOCK"), of Parent equal to that
number (the "EXCHANGE RATIO") (rounded to the nearest
ten-thousandth) determined by dividing $23 by the Parent Average
Closing Price; provided that the Exchange Ratio (x) shall not be
less than 0.3182 and (y) shall not exceed 0.3660 ((x) and (y) being
referred to as "COLLARS").
For purposes of this Agreement, "PARENT AVERAGE CLOSING PRICE" means
the average closing price per share of the Parent Common Stock on the New York
Stock Exchange, Inc. (the "NYSE") for the Random Trading Days and "RANDOM
TRADING DAYS" means the ten trading days selected by lot out of the twenty
trading days ending on and including the fifth trading day preceding the date of
the Company Stockholders Meeting (with the Random Trading Days selected by lot
by Parent and Company at 5:00 p.m. New York time on the fifth trading day prior
to the date of the Company Stockholders Meeting).
(b) From and after the Effective Time, all Shares converted in
accordance with Section 1.02(a)(iii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration (as
hereinafter defined) and any dividends payable pursuant to Section 1.03(f). From
and after the Effective Time, all certificates representing the common stock of
Merger Subsidiary shall be deemed for all
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purposes to represent the number of shares of common stock of the Surviving
Corporation into which they were converted in accordance with Section
1.02(a)(ii).
(c) The Parent Common Stock to be received as consideration pursuant
to the Merger by each holder of Shares (together with cash in lieu of fractional
shares of Parent Common Stock as specified below) is referred to herein as the
"MERGER CONSIDERATION".
(d) For purposes of this Agreement, the word "SUBSIDIARY" when used
with respect to any Person means any other Person, whether incorporated or
unincorporated, of which a majority of the securities or other interests having
by their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such Person or by any one or more of its Subsidiaries. For purposes of this
Agreement, "PERSON" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a Governmental Authority (as hereinafter defined).
SECTION 1.03. Surrender and Payment. (a) Prior to the Effective
Time, Parent shall appoint an agent reasonably acceptable to Company (the
"EXCHANGE AGENT") for the purpose of exchanging certificates representing Shares
for the Merger Consideration. Immediately following the Effective Time, Parent
shall deposit with the Exchange Agent, for the benefit of the holders of shares
of Company Common Stock, certificates representing the Parent Common Stock
issuable pursuant to Section 1.02 in exchange for outstanding shares of Company
Common Stock. Promptly after the Effective Time, Parent will send, or will cause
the Exchange Agent to send, to each holder of Shares at the Effective Time (i) a
letter of transmittal for use in such exchange (which shall specify that
delivery of the Merger Consideration shall be effected, and risk of loss and
title to the certificates representing Parent Common Stock and Company Common
Stock shall pass, only upon proper delivery of the certificates representing
Shares to the Exchange Agent) and (ii) instructions for use in effecting the
surrender of the certificates representing Shares in exchange for the
certificates representing Parent Common Stock.
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(b) Each holder of Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a properly
completed letter of transmittal covering such Shares, will be entitled to
receive the Merger Consideration payable in respect of such Shares and any
dividends payable pursuant to Section 1.03(f). Until so surrendered, each such
certificate shall, after the Effective Time, represent for all purposes only the
right to receive the Merger Consideration and any dividends payable pursuant to
Section 1.03(f).
(c) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the Shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required by reason of the payment of the Merger Consideration to
a Person other than the registered holder of such Shares represented by the
certificate or certificates so surrendered or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
(d) After the Effective Time, there shall be no further registration
of transfers of Shares. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be canceled and
exchanged for the consideration provided for, and in accordance with the
procedures set forth, in this Article 1.
(e) Any portion of the Merger Consideration made available to the
Exchange Agent pursuant to Section 1.03(a) that remains unclaimed by the holders
of Shares six months after the Effective Time shall be returned to Parent, upon
demand, and any such holder who has not exchanged his Shares for the Merger
Consideration in accordance with this Section 1.03 prior to that time shall
thereafter look only to Parent for payment of the Merger Consideration and any
dividends payable pursuant to Section 1.03(f) in respect of his Shares.
Notwithstanding the foregoing, Parent shall not be liable to any holder of
Shares for any amount paid to a public official pursuant to applicable abandoned
property
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laws. Any amounts remaining unclaimed by holders of Shares seven years after the
Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental
Authority) shall, to the extent permitted by applicable law, become the property
of Parent free and clear of any claims or interest of any Person previously
entitled thereto.
(f) No dividends or other distributions with respect to Parent
Common Stock issued in the Merger shall be paid to the holder of any
unsurrendered certificates representing Shares until such certificates are
surrendered as provided in this Section 1.03. Subject to the effect of
applicable laws, following the surrender of such certificates, there shall be
paid, without interest, to the record holder of the Parent Common Stock issued
in exchange therefor at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time payable prior to
or on the date of such surrender with respect to such whole shares of Parent
Common Stock and not previously paid, less the amount of any withholding taxes
which may be required thereon.
SECTION 1.04. Stock Options. (a) As soon as practicable following
the date of this Agreement, Parent and Company (or, if appropriate, any
committee of the Board of Directors of Company administering Company's Amended
and Restated Stock Option Plan and 1996 Stock Option Plan (collectively, the
"COMPANY OPTION PLANS") shall take such action as may be required to effect the
following provisions of this Section 1.04(a). The terms of each outstanding
option granted by Company to purchase shares of Company Common Stock under the
Company Option Plans (a "COMPANY STOCK OPTION"), whether vested or unvested,
shall be adjusted as necessary to provide that at the Effective Time, each
Company Stock Option outstanding immediately prior to the Effective Time shall
be deemed to constitute an option to acquire, on the same terms and conditions
as were applicable under such Company Stock Option (after giving effect to the
existing provisions in the Company Option Plans or related option agreements
that provide for the automatic acceleration of vesting upon consummation of a
change of control of Company), the same number of shares of Parent Common Stock
as the holder of such Company Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such Company Stock Option in
full immediately prior to the Effective Time (assuming for this purpose that
such option were then exercisable), at
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a price per share of Parent Common Stock equal to (A) the aggregate exercise
price for the shares of Company Common Stock otherwise purchasable pursuant to
such Company Stock option divided by (B) the aggregate number of shares of
Parent Common Stock deemed purchasable pursuant to such Company Stock Option
(each, as so adjusted, an "ADJUSTED OPTION"); provided that (after aggregating
all the Shares of a holder subject to Company Stock Options) any fractional
share of Parent Common Stock resulting from such calculation for such holder
shall be rounded down to the nearest whole share; and provided further that, in
the case of any Company Stock Option to which Section 421 of the Code applies by
reason of its qualification under any of Sections 422 through 424 of the Code
("QUALIFIED STOCK OPTIONS"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such
Adjusted Option shall be determined in such manner so as to comply with Section
424 of the Code. Upon exercise of an Adjusted Option, a cash payment shall be
made to the holder of such Adjusted Option for the fractional share of Parent
Common Stock referred to in the preceding sentence. For purposes of determining
the amount of such payment the price of the Parent Common Stock shall be the
average closing price per share of the Parent Common Stock on the NYSE for the
five trading days immediately prior to the date of exercise.
(b) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Stock Options appropriate notices setting
forth such holders' rights pursuant to the respective Company Option Plans and
that such Company Stock Options and agreements shall be assumed by Parent and
shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 1.04 after giving effect to the Merger).
(c) Parent shall take such actions as are necessary for the
assumption of the Company Option Plans pursuant to this Section 1.04, including
the reservation, issuance and listing of Parent Common Stock as is necessary to
effectuate the transactions contemplated by this Section 1.04. Parent shall
prepare and file with the SEC (as hereinafter defined) a registration statement
on Form S-8 or other appropriate form with respect to shares of Parent Common
Stock subject to Company Stock Options issued under such Company Option Plans
and shall use its reasonable best efforts to have such registration statement
declared effective as soon as practicable following the Effective
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Time and to maintain the effectiveness of such registration statement or
registration statements covering such Company Stock Options (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such Company Stock Options remain outstanding. With respect to those
individuals, if any, who subsequent to the Effective Time will be subject to the
reporting requirements under Section 16(a) of the 1934 Act (as hereinafter
defined), where applicable, Parent shall use all reasonable efforts to
administer the Company Option Plans assumed pursuant to this Section 1.04 in a
manner that complies with Rule 16b-3 promulgated under the 1934 Act to the
extent the applicable Company Option Plan complied with such rule prior to the
Merger.
SECTION 1.05. Fractional Shares. (a) No fractional shares of Parent
Common Stock shall be issued in the Merger, but in lieu thereof each holder of
Shares otherwise entitled to a fractional share of Parent Common Stock will be
entitled to receive, from the Exchange Agent in accordance with the provisions
of this Section 1.05, a cash payment in lieu of such fractional shares of Parent
Common Stock representing such holder's proportionate interest, if any, in the
net proceeds from the sale by the Exchange Agent in one or more transactions of
the number of shares of Parent Common Stock delivered to the Exchange Agent by
Parent pursuant to Section 1.03(a) over the aggregate number of whole shares of
Parent Common Stock to be distributed to the holders of the certificates
representing Shares pursuant to Section 1.03(b) (such excess being herein called
the "EXCESS SHARES"). The parties acknowledge that payment of the cash
consideration in lieu of issuing fractional shares was not separately bargained
for consideration but merely represents a mechanical rounding off for purposes
of simplifying the corporate and accounting problems that would otherwise be
caused by the issuance of fractional shares. As soon as practicable after the
Effective Time, the Exchange Agent, as agent for the holders of the certificates
representing Shares, shall sell the Excess Shares at then prevailing prices on
the NYSE in the manner provided in the following paragraph.
(b) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE through one or more member firms of the NYSE and shall be
executed in round lots to the extent practicable. The proceeds from such sale or
sales available for distribution to the holders of Shares shall be reduced by
the compensation payable to the Exchange
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Agent and the expenses incurred by the Exchange Agent, in each case, in
connection with such sale or sales of the Excess Shares, including all related
commissions, transfer taxes and other out-of-pocket transaction costs. Until the
net proceeds of such sale or sales have been distributed to the holders of
Shares, the Exchange Agent shall hold such net proceeds in trust for the holders
of Shares (the "COMMON SHARES TRUST"). The Exchange Agent shall determine the
portion of the Common Shares Trust to which each holder of Shares shall be
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Shares Trust by a fraction, the numerator of which is the
amount of the fractional share interest to which such holder of Shares would
otherwise be entitled and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Shares would otherwise be
entitled.
(c) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Shares in lieu of any fractional shares
of Parent Common Stock, the Exchange Agent shall make available such amounts to
such holders of Shares without interest.
SECTION 1.06. Adjustments. In the event of any split, combination or
reclassification of the outstanding Parent Common Stock or any issuance of any
other securities in exchange or in substitution for outstanding shares of Parent
Common Stock at any time during the period from the date of this Agreement to
the Effective Time, Company and Parent shall make such adjustment to the
Exchange Ratio and the Collars as Company and Parent shall mutually agree so as
to preserve the economic benefits that Company and Parent each reasonably
expected on the date of this Agreement to receive as a result of the
consummation of the Merger and the other transactions contemplated by this
Agreement.
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. Articles of Incorporation. The articles of
incorporation of Merger Subsidiary shall be the articles of incorporation of the
Surviving Corporation until amended in accordance with applicable law.
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SECTION 2.02. Bylaws. The bylaws of Merger Subsidiary in effect at
the Effective Time shall be the bylaws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 2.03. Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in accordance
with the Michigan Law and the articles of incorporation and bylaws of the
Surviving Corporation, (a) the directors of Merger Subsidiary at the Effective
Time shall be the directors of the Surviving Corporation, and (b) the officers
of Merger Subsidiary at the Effective Time shall be the officers of the
Surviving Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents and warrants to Parent that:
SECTION 3.01. Organization and Power. Each of Company and its
Subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has the requisite corporate or other power
and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Company. Each of Company and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate, have
a Material Adverse Effect on Company. For purposes of this Agreement, a
"MATERIAL ADVERSE EFFECT" with respect to any Person means a material adverse
effect (i) on the condition (financial or otherwise), business, liabilities,
properties, assets or results of operations of such Person and its Subsidiaries,
taken as a whole, or (ii) on the ability of such Person to perform its
obligations under or to
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consummate the transactions contemplated by this Agreement. Schedule 3.01 sets
forth a complete list of Company's Subsidiaries that are "significant
subsidiaries", as such term is defined in Section 1-02 of Regulation S-X under
the 1934 Act (each, a "SIGNIFICANT SUBSIDIARY"). Company has heretofore
delivered to Parent true and complete copies of Company's articles of
incorporation and bylaws as currently in effect.
SECTION 3.02. Corporate Authorization. The execution, delivery and
performance by Company of this Agreement and the consummation by Company of the
transactions contemplated hereby are within Company's corporate powers and,
except as set forth in the next succeeding sentence of this Section 3.02, have
been duly authorized by all necessary corporate action. The affirmative vote of
a majority of the outstanding Shares is the only vote of any class or series of
Company's capital stock necessary to approve and adopt this Agreement and the
transactions contemplated by this Agreement. This Agreement has been duly
executed and delivered by Company and constitutes a valid and binding agreement
of Company, enforceable against Company in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, regardless of whether in
a proceeding at equity or at law).
SECTION 3.03. Governmental Authorization. The execution, delivery
and performance by Company of this Agreement, and the consummation by Company of
the transactions contemplated hereby, require no action by or in respect of, or
filing with, any federal, state or local government or any court, administrative
agency or commission or other governmental agency or authority (a "GOVERNMENTAL
AUTHORITY") other than (a) the filing of a certificate of merger with respect to
the Merger with the Michigan Department of Consumer and Industry Services and
appropriate documents with the relevant authorities of other states in which
Company is qualified to do business; (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"); (c) compliance with any applicable requirements of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "1933 ACT"); (d) compliance with any applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules
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and regulations promulgated thereunder (the "1934 ACT"); (e) compliance with any
other applicable securities laws; (f) those that may be required solely by
reason of Parent's or Merger Subsidiary's (as opposed to any other third
party's) participation in the transactions contemplated by this Agreement; (g)
the approval of the relevant pharmacy board, alcoholic beverage commission and
lottery commission in Michigan; (h) actions or filings which, if not taken or
made, would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Company; and (i) filings and notices not
required to be made or given until after the Effective Time.
SECTION 3.04. Non-contravention. Except as set forth on Schedule
3.04, the execution, delivery and performance by Company of this Agreement do
not, and the consummation by Company of the transactions contemplated hereby
will not (a) assuming receipt of the approval of stockholders referred to in
Section 3.02, contravene or conflict with the articles of incorporation, bylaws
or similar organizational documents of Company or any of its Significant
Subsidiaries, (b) assuming compliance with the matters referred to in Section
3.03, contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to Company or any Subsidiary of Company, (c) constitute a default (or
an event which with notice, the lapse of time or both would become a default)
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of Company or any Subsidiary of Company or to a loss of
any benefit to which Company or any Subsidiary of Company is entitled under any
provision of any agreement, contract or other instrument binding upon Company or
any Subsidiary of Company and which either has a term of more than one year or
involves the payment or receipt of money in excess of $250,000 (a "COMPANY
AGREEMENT") or any license, franchise, permit or other similar authorization
held by Company or any Subsidiary of Company, or (d) result in the creation or
imposition of any Lien on any asset of Company or any Subsidiary of Company,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, losses or
Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on Company. For purposes of this
Agreement, "LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
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SECTION 3.05. Capitalization of Company. (a) The authorized capital
stock of Company consists of 100,000,000 shares of Company Common Stock and
2,000,000 shares of Preferred Stock, par value $.01 per share (the "COMPANY
PREFERRED STOCK"). As of the close of business on January 31, 1998, 59,363,555
shares of Company Common Stock are issued and outstanding, no shares of Company
Common Stock are reserved for issuance under Company's 401(k) Savings Plan,
750,000 shares of Company Common Stock are reserved for issuance under Company's
Employee Stock Purchase Plan, 8,352,195 shares of Company Common Stock are
reserved for issuance pursuant to options previously granted pursuant to the
Company Stock Option Plans and no shares of the Company Preferred Stock are
issued or outstanding. All holders of Company Common Stock as of the record date
will be entitled to vote with respect to the Merger. All the outstanding shares
of Company's capital stock are, and all shares which may be issued pursuant to
the Company Option Plans will be, when issued in accordance with the respective
terms thereof, duly authorized, validly issued, fully paid and non-assessable.
Except (i) as set forth in this Section 3.05 or in Schedule 5.01, (ii) for the
transactions contemplated by this Agreement, including those permitted in
accordance with Section 5.01(f), (iii) for changes since January 31, 1998
resulting from the exercise of employee and director stock options outstanding
on such date and (iv) for Shares that may be issued as provided in Section
5.01(f), there are outstanding (x) no shares of capital stock or other voting
securities of Company, (y) no securities of Company convertible into or
exchangeable for shares of capital stock or voting securities of Company, and
(z) no options, warrants or other rights to acquire from Company, and no
preemptive or similar rights, subscriptions or other rights, convertible
securities, agreements, arrangements or commitments of any character, relating
to the capital stock of Company, obligating Company to issue, transfer or sell,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Company or obligating
Company to grant, extend or enter into any such option, warrant, subscription or
other right, convertible security, agreement, arrangement or commitment (the
items in clauses (x), (y) and (z) being referred to collectively as the "COMPANY
SECURITIES"). None of Company or its Subsidiaries has any contractual obligation
to redeem, repurchase or otherwise acquire any Company Securities or any Company
Subsidiary Securities (as hereinafter defined), including as a result of the
transactions contemplated by this Agreement. Except as
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permitted by this Agreement, the number of shares of Company Common Stock
outstanding is not subject to change prior to the Effective Time. Except as
permitted by this Agreement, following the Merger, neither Company nor any of
its Subsidiaries will have any obligation to issue, transfer or sell any shares
of its capital stock pursuant to any employee benefit plan or otherwise.
(b) There are no voting trusts or other agreements or understandings
to which Company or any Subsidiary of Company is a party with respect to the
voting of the capital stock of Company or any Subsidiary of Company.
SECTION 3.06. Capitalization of Subsidiaries. Except as set forth in
Schedule 3.06, all of the outstanding shares of capital stock of, or other
ownership interests in, each Subsidiary of Company, is owned by Company,
directly or indirectly, free and clear of any Lien (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Company or any
Subsidiary of Company convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Subsidiary of
Company, or (ii) options or other rights to acquire from Company or any
Subsidiary of Company, and no other obligation of Company or any Subsidiary of
Company to issue, any capital stock, voting securities or other ownership
interests in, or any securities convertible into or exchangeable for, any
capital stock, voting securities or ownership interests in, any Subsidiary of
Company (the items in clauses (i) and (ii) being referred to collectively as the
"COMPANY SUBSIDIARY SECURITIES").
SECTION 3.07. SEC Filings. (a) Company has filed all required
reports, schedules, forms, statements and other documents with the Securities
and Exchange Commission (the "SEC") since July 31, 1996 (the "COMPANY SEC
DOCUMENTS").
(b) As of its filing date, each Company SEC Document filed pursuant
to the 1934 Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except to the extent that such
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statements have been modified or superseded by a later filed Company SEC
Document.
(c) Each Company SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act as of the
date such registration statement or amendment became effective did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent that such statements have been modified or
superseded by a later filed Company SEC Document.
SECTION 3.08. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements of
Company included in Company's Annual Report on Form 10-K for the fiscal year
ended July 31, 1997 (the "COMPANY 10-K") and its Quarterly Report on Form 10-Q
for the fiscal quarter ended October 31, 1997 have been prepared in accordance
with GAAP (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Company and its consolidated Subsidiaries as
of the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject to normal year-end adjustments in the case
of any unaudited interim financial statements). For purposes of this Agreement,
"COMPANY BALANCE SHEET" means the consolidated balance sheet of Company as of
July 31, 1997 set forth in the Company 10-K and "COMPANY BALANCE SHEET DATE"
means July 31, 1997.
SECTION 3.09. Disclosure Documents. Neither the proxy statement of
Company (the "COMPANY PROXY STATEMENT") to be filed with the SEC in connection
with the Merger, nor any amendment or supplement thereto, will, at the date the
proxy statement or any such amendment or supplement is first mailed to
shareholders of Company or at the time such shareholders vote on the adoption
and approval of this Agreement and the transactions contemplated hereby, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company Proxy Statement will,
when filed, comply as to form in all material respects with the requirements of
the 1934 Act. No representation or warranty
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is made by Company in this Section 3.09 with respect to statements made or
incorporated by reference therein based on information supplied by Parent or
Merger Subsidiary for inclusion or incorporation by reference in the Company
Proxy Statement.
SECTION 3.10. Information Supplied. None of the information supplied
or to be supplied by Company for inclusion or incorporation by reference in the
Form S-4 (as hereinafter defined) or any amendment or supplement thereto will,
at the time the Form S-4 or any such amendment or supplement becomes effective
under the 1933 Act or at the Effective Time, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
SECTION 3.11. Absence of Certain Changes. Except as disclosed in the
Company SEC Documents filed prior to the date of this Agreement or as disclosed
in Schedule 3.11, since the Company Balance Sheet Date, Company and its
Subsidiaries have conducted their business in the ordinary course consistent
with past practice and there has not been:
(a) any event, occurrence or development which, individually or in
the aggregate, has had or would be reasonably likely to have a Material
Adverse Effect on Company, except for general economic changes, changes
that affect the industry of Company or any of its Subsidiaries generally,
and changes in Company's business after the date hereof attributable
solely to the execution of this Agreement or actions taken by Parent;
(b) except for a dividend payable in Company Common Stock on the
Company Common Stock (all effects of which are reflected in Section 3.05
of this Agreement) and an increase to $.06 per share of the regular
quarterly cash dividend on the Company Common Stock, each as authorized by
the Company's Board of Directors in December 1997, any declaration,
setting aside or payment of any dividend or other distribution with
respect to any shares of capital stock of Company, or any repurchase,
redemption or other acquisition by Company or any Subsidiary of Company of
any amount of outstanding shares of capital stock or other equity
securities of, or other ownership interests in, Company or any Subsidiary
of Company;
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(c) any amendment of any term of any outstanding security of Company
or any Subsidiary of Company that would increase the obligations of
Company or such Subsidiary under such security;
(d) (x) any incurrence or assumption by Company or any Subsidiary of
Company of any indebtedness for borrowed money other than under existing
credit facilities (or any renewals, replacements or extensions that do not
increase the aggregate commitments thereunder) (A) in the ordinary course
of business consistent with past practices (it being understood that any
indebtedness incurred prior to the date hereof in respect of capital
expenditures disclosed in writing to Parent shall be considered to have
been in the ordinary course of business consistent with past practice) or
(B) in connection with (1) any acquisition or capital expenditure
permitted by Section 5.01 or (2) the transactions contemplated hereby, or
(y) any guarantee, endorsement or other incurrence or assumption of
liability (whether directly, contingently or otherwise) by Company or any
Subsidiary of Company for the obligations of any other Person (other than
any wholly owned Subsidiary of Company), other than in the ordinary course
of business consistent with past practice;
(e) any creation or assumption by Company or any Subsidiary of
Company of any Lien on any material asset of Company or any Subsidiary of
Company other than in the ordinary course of business consistent with past
practices;
(f) any making of any loan, advance or capital contribution to or
investment in any Person by Company or any Subsidiary of Company other
than (i) any acquisition permitted by Section 5.01, (ii) loans, advances
or capital contributions to or investments in wholly-owned Subsidiaries of
Company or (iii) loans or advances to employees of Company or any
Subsidiary of Company made in the ordinary course of business consistent
with past practices;
(g) (i) any contract or agreement entered into by Company or any
Subsidiary of Company on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business or (ii) any
modification, amendment, assignment, termination or
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relinquishment by Company or any Subsidiary of Company of any contract,
license or other right (including any insurance policy naming it as a
beneficiary or a loss payable payee) that would be reasonably likely to
have a Material Adverse Effect on Company, other than, in the case of (i)
and (ii), transactions, commitments, contracts or agreements in the
ordinary course of business consistent with past practice and those
contemplated by this Agreement;
(h) any material change in any method of accounting or accounting
principles or practice by Company or any Subsidiary of Company, except for
any such change required by reason of a change in GAAP; or
(i) except for items permitted by Section 5.17, any (i) grant of any
severance or termination pay to any director, officer or employee of
Company or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any
such existing agreement) with any director, officer or employee of Company
or any of its Subsidiaries, (iii) increase in benefits payable under any
existing severance or termination pay policies or employment agreements or
(iv) increase in compensation, bonus or other benefits payable to
directors, officers or employees of Company or any of its Subsidiaries
other than, in the case of clause (iv) only, increases prior to the date
hereof in compensation, bonus or other benefits payable to employees of
Company or any of its Subsidiaries in the ordinary course of business
consistent with past practice or merit increases in salaries of employees
at regularly scheduled times in customary amounts consistent with past
practices.
SECTION 3.12. No Undisclosed Material Liabilities. There have been
no liabilities or obligations (whether pursuant to contracts or otherwise) of
any kind whatsoever incurred by Company or any Subsidiary of Company since the
Company Balance Sheet Date, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than:
(a) liabilities or obligations disclosed or provided for in the
Company Balance Sheet or in the notes thereto or in the Company SEC
Documents filed prior to the date hereof;
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(b) liabilities or obligations which, individually and in the
aggregate, have not had and are not reasonably likely to have a Material
Adverse Effect on Company; or
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby.
SECTION 3.13. Litigation. Except as disclosed in the Company SEC
Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Company,
threatened against or affecting, Company or any Subsidiary of Company or any of
their respective properties before any Governmental Authority which,
individually or in the aggregate, would be reasonably likely to have a Material
Adverse Effect on Company.
SECTION 3.14. Taxes. (a) Company and each of its Subsidiaries, and
each affiliated group (within the meaning of Section 1504 of the Code) of which
Company or any Subsidiary is or has been a member, has timely filed (or has had
timely filed on its behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by it prior to or as
of the Effective Time, and all such material Tax Returns are, or will be at the
time of filing, true and complete in all material respects;
(b) Company and each of its Subsidiaries has paid (or has had paid
on its behalf) or, where payment is not yet due, has established or will timely
establish (or has had or will timely have established on its behalf and for its
sole benefit and recourse) an adequate accrual in accordance with GAAP for the
payment of, all material Taxes due with respect to any period ending prior to or
as of the Effective Time;
(c) The federal income Tax Returns of Company and its Subsidiaries
have been examined and settled with the Internal Revenue Service (the "SERVICE")
(or the applicable statutes of limitation for the assessment of federal income
Taxes for such periods have expired) for all years through 1995;
(d) There are no material Liens or encumbrances for Taxes on any of
the assets of Company or its
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Subsidiaries (other than for current Taxes not yet due and payable);
(e) Company and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes;
(f) No federal, state, local or foreign audits or administrative
proceedings are presently pending with regard to any material Taxes or Tax
Return of Company or its Subsidiaries and none of them has received a written
notice of any proposed audit or proceeding regarding any pending audit or
proceeding; and
(g) "TAXES" shall mean any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, franchise, transfer and recording taxes, fees and
charges, and any other taxes, assessment or similar charges imposed by the
Service or any other taxing authority (whether domestic or foreign including any
state, county, local or foreign government or any subdivision or taxing agency
thereof (including a United States possession)) (a "TAXING AUTHORITY"), whether
computed on a separate, consolidated, unitary, combined or any other basis; and
such term shall include any interest whether paid or received, fines, penalties
or additional amounts, and any joint, several and/or transferee liabilities,
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "TAX RETURN" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes, including information returns, any documents with respect to or
accompanying payments of estimated Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information.
SECTION 3.15. Employee Benefit Plans; ERISA. (a) Except as set forth
in Schedule 3.15(a), there are no material employee benefit plans (including any
plans for the benefit of directors or former directors), arrangements,
practices, contracts or agreements (including employment
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agreements and severance agreements, incentive compensation, bonus, stock
option, stock appreciation rights and stock purchase plans) of any type
(including plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained by Company, any of its
Subsidiaries or any trade or business, whether or not incorporated (an "ERISA
AFFILIATE"), that together with Company would be deemed a "CONTROLLED GROUP"
within the meaning of Section 4001(a)(14) of ERISA, or with respect to which
Company or any of its Subsidiaries has or may have a liability (the "COMPANY
BENEFIT PLANS"). Except as disclosed in Schedule 3.15(a) (or as otherwise
permitted by this Agreement): (1) neither Company nor any ERISA Affiliate has
any formal plan or commitment, whether legally binding or not, to create any
additional Company Benefit Plan or modify or change any existing Company Benefit
Plan that would affect any employee or terminated employee of Company or any
ERISA Affiliate; and (2) since October 31, 1997, there has been no change,
amendment, modification to, or adoption of, any Company Benefit Plan, in each
case, that has had, or would be reasonably likely to have, a Material Adverse
Effect on Company.
(b) With respect to each Company Benefit Plan, except as disclosed
in Schedule 3.15(b) or as would not, individually or in the aggregate, have a
Material Adverse Effect on Company: (i) if intended to qualify under Section
401(a), 401(k) or 403(a) of the Code, such plan so qualifies, and its trust is
exempt from taxation under Section 501(a) of the Code; (ii) such plan has been
administered in accordance with its terms and applicable law; (iii) no breaches
of fiduciary duty have occurred; (iv) no prohibited transaction within the
meaning of Section 406 of ERISA has occurred; (v) as of the date of this
Agreement, no lien imposed under the Code or ERISA exists; and (vi) all
contributions and premiums due (including any extensions for such contributions
and premiums) have been made in full.
(c) None of the Company Benefit Plans has incurred any "accumulated
funding deficiency", as such term is defined in Section 412 of the Code, whether
or not waived.
(d) Except as disclosed in Schedule 3.15(d), neither Company nor any
ERISA Affiliate has incurred any liability under Title IV of ERISA (including
Sections 4063- 4064 and 4069 of ERISA) that has not been satisfied in full
except as, individually or in the aggregate, would not have
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or would not be reasonably likely to have a Material Adverse Effect on Company
or that has not been reflected on Company's consolidated financial statements.
(e) With respect to each Company Benefit Plan that is a "welfare
plan" (as defined in Section 3(1) of ERISA), except as specifically disclosed in
Schedule 3.15(e), no such plan provides medical or death benefits with respect
to current or former employees of Company or any of its Subsidiaries beyond
their termination of employment, other than as may be required under Part 6 of
Title I of ERISA and at the expense of the participant or the participant's
beneficiary and except as would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Company.
(f) Except with respect to payments under the agreements and
programs specified in Schedule 3.15(f), the consummation of the transactions
contemplated by this Agreement will not entitle any individual to severance pay
or any tax "gross-up" payments with respect to the imposition of any tax
pursuant to Section 4999 of the Code or accelerate the time of payment or
vesting, or increase the amount, of compensation or benefits due to any
individual with respect to any Company Benefit Plan.
(g) Except as disclosed in Schedule 3.15(a), there is no Company
Benefit Plan that is a "multiemployer plan", as such term is defined in Section
3(37) of ERISA, or which is covered by Section 4063 or 4064 of ERISA.
(h) Schedule 3.15(h) identifies each collective bargaining agreement
to which Company or any of its Significant Subsidiaries is a party and copies of
each such agreement have been furnished to or made available to Parent. Except
as set forth on Schedule 3.15(h), or except as would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Company,
(i) there is no labor strike, slowdown or work stoppage or lockout against
Company or any of its Significant Subsidiaries and (ii) there is no unfair labor
practice charge or complaint against or pending before the National Labor
Relations Board. As of the date of this Agreement, there is no representation
claim or petition pending before the National Labor Relations Board and, to the
knowledge of Company, no question concerning representation exists with respect
to the employees of Company or any of its Significant Subsidiaries.
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SECTION 3.16. Compliance with Laws; No Default; No Non-Competes. (a)
Neither Company nor any of its Subsidiaries is in violation of or, since
December 31, 1996, has been in violation of or has failed to comply with any
statute, law, ordinance, regulation, rule, judgment, decree, order, writ,
injunction, permit or license or other authorization or approval of any
Governmental Authority applicable to its business or operations, except for
violations and failures to comply that have not had and would not, individually
or in the aggregate, be reasonably likely to result in a Material Adverse Effect
on Company.
(b) Each Company Agreement is a valid, binding and enforceable
obligation of Company and in full force and effect, except where the failure to
be valid, binding and enforceable and in full force and effect would not,
individually or in the aggregate, have a Material Adverse Effect on Company.
None of Company or any of its Subsidiaries is in default or violation of any
term, condition or provision of (i) its respective articles of incorporation or
by-laws or similar organizational documents or (ii) except as disclosed in
Schedule 3.16, any Company Agreement and except, in the case of clause (ii)
above for defaults or violations that, individually or in the aggregate, have
not had and would not be reasonably likely to have a Material Adverse Effect on
Company. Company has all permits and licenses (including pharmaceutical and
liquor licenses and permits) necessary to carry on the business being conducted
at each store location, except where the failure to have such permit or license
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect on Company. Except as disclosed in Schedule 3.16,
neither Company nor any Subsidiary of Company is a party to any agreement that
expressly limits the ability of Company or any Subsidiary of Company to compete
in or conduct any line of business or compete with any Person or in any
geographic area or during any period of time except to the extent that any such
limitation would not be reasonably likely to have a Material Adverse Effect on
Company.
SECTION 3.17. Finders' Fees. Except for Goldman, Sachs & Co., a copy
of whose engagement agreement has been provided to Parent, no investment banker,
broker, finder, other intermediary or other Person is entitled to any fee or
commission from Company or any Subsidiary of Company upon consummation of the
transactions contemplated by this Agreement.
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SECTION 3.18. Environmental Matters. (a) Except as set forth in the
Company 10-K:
(i) no notice, notification, demand, request for
information, citation, summons or order has been received by, no
complaint has been filed against, no penalty has been assessed
against, and no investigation, action, claim, suit, proceeding or
review is pending or, to the knowledge of Company or any Subsidiary
of Company, is threatened by any Person against, Company or any
Subsidiary of Company with respect to any matters relating to or
arising out of any Environmental Law which, individually or in the
aggregate, would be reasonably likely to have a Material Adverse
Effect on Company;
(ii) no Hazardous Substance has been discharged, disposed
of, dumped, injected, pumped, deposited, spilled, leaked, emitted or
released at, on or under any property now or, to the knowledge of
Company, previously owned, leased or operated by Company or any
Subsidiary of Company, which circumstance, individually or in the
aggregate, would be reasonably likely to have a Material Adverse
Effect on Company; and
(iii) there are no Environmental Liabilities that,
individually or in the aggregate, have had or would be reasonably
likely to have a Material Adverse Effect on Company.
(b) For purposes of this Section, the following terms shall have the
meanings set forth below:
(i) "COMPANY" and "SUBSIDIARY OF COMPANY"
shall include any entity which is, in whole or in
part, a predecessor of Company or any of its
Subsidiaries;
(ii) "ENVIRONMENTAL LAWS" means any and all federal, state,
local and foreign law (including common law), treaty, judicial
decision, regulation, rule, judgment, order, decree, injunction,
permit, or governmental restrictions or any agreement with any
governmental authority or other third party, relating to human
health and safety, the environment or to pollutants,
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contaminants, wastes or chemicals or toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or
materials;
(iii) "ENVIRONMENTAL LIABILITIES" means any and all
liabilities of or relating to Company or any Subsidiary of Company
of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, which arise under or relate
to matters covered by Environmental Laws and arise from actions
occurring or conditions existing on or prior to the Effective Time;
and
(iv) "HAZARDOUS SUBSTANCES" means any pollutant,
contaminant, waste or chemical or any toxic, radioactive, corrosive,
reactive or otherwise hazardous substance, waste or material, or any
substance having any constituent elements displaying any of the
foregoing characteristics, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance, waste or
material regulated under any Environmental Laws.
SECTION 3.19. Assets. The assets, properties, rights and contracts,
including (as applicable), title or leaseholds thereto, of Company and its
Subsidiaries, taken as a whole, are sufficient to permit Company and its
Subsidiaries to conduct their business as currently being conducted with only
such exceptions as are not reasonably likely to have a Material Adverse Effect
on Company. All material real property owned by Company and its Subsidiaries is
owned free and clear of all Liens, except (A) those reflected or reserved
against in the latest balance sheet (or notes thereto) of Company included in
the Company SEC Documents filed prior to the date hereof, (B) taxes and general
and special assessments not in default and payable without penalty or interest,
and (C) Liens that do not materially adversely interfere with any present use of
such property.
SECTION 3.20. Opinion of Financial. Company has received the opinion
of Goldman, Sachs & Co. to the effect that, as of the date of such opinion, the
Exchange Ratio to be received by the holders of Shares in connection with the
Merger is fair to such holders from a financial point of view, and such opinion
has not been withdrawn.
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SECTION 3.21. Transactions with Affiliates. Except to the extent
disclosed in the Company SEC Documents filed prior to the date hereof or in
Schedule 3.21, since the Company Balance Sheet Date there have been no
transactions, agreements, arrangements or understandings between Company or its
Subsidiaries, on the one hand, and Company's Affiliates (other than its
wholly-owned Subsidiaries) or other Persons, on the other hand, that would be
required to be disclosed under Item 404 of Regulation S-K under the 1933 Act.
For purposes of this Agreement, the term "AFFILIATE", when used with respect to
any Person, means any other Person directly or indirectly controlling,
controlled by, or under common control with such Person. As used in the
definition of "Affiliate", the term "CONTROL" means possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
SECTION 3.22. Pooling; Tax Treatment. (a) The Company intends that
the Merger be accounted for under the "pooling of interests" method under the
requirements of Opinion No. 16 (Business Combinations) of the Accounting
Principles Board of the American Institute of Certified Public Accountants, the
Financial Accounting Standards Board, and the rules and regulations of the SEC.
(b) Neither Company nor any of its Affiliates has taken or agreed to
take any action or is aware of any fact or circumstance that would prevent the
Merger from qualifying (i) for "pooling of interests" accounting treatment as
described in (a) above or (ii) as a reorganization within the meaning of Section
368 of the Code (a "368 REORGANIZATION").
SECTION 3.23. Pooling Letter. Company has received a letter from
Coopers & Lybrand LLP dated as of the date hereof and addressed to Company, a
copy of which has been delivered to Parent, stating that Coopers & Lybrand LLP
believes that the acquisition of Company by Parent should be treated as a
"pooling of interests" as described in Section 3.22(a).
SECTION 3.24. Takeover Statutes. The Board of Directors of Company
has duly and validly approved and taken all corporate action required to be
taken by the Board of Directors for the consummation of the transactions
contemplated by the Merger, this Agreement and the Option
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Agreement, including, but not limited to, all actions required to render the
provisions of Section 775 through Section 784 of the Michigan Law restricting
business combinations with "interested shareholders" inapplicable to such
transactions and to provide that none of Parent, Merger Subsidiary or any of
their affiliates shall become an "interested shareholder" upon the execution and
delivery of the Option Agreement or the acquisition of Company Common Stock
pursuant thereto, such that any business combination thereafter proposed among
Parent or Merger Subsidiary or their affiliates and the Company shall be exempt
from the requirements of such Sections. The Company has taken all action
necessary to opt out of Sections 790 through 799 of the Michigan Law in order to
render the provisions of such statutes restricting voting rights of "control
shares" inapplicable to Company Common Stock acquired by Parent, Merger
Subsidiary or their affiliates pursuant to the Merger or the Option Agreement.
No other "fair price", "moratorium", "control share acquisition" or other
similar antitakeover statute or regulation enacted under state or federal laws
in the United States (each, a "TAKEOVER STATUTE") applicable to Company or any
of its Subsidiaries is applicable to the Merger or the other transactions
contemplated hereby.
SECTION 3.25. Affiliates. Schedule 3.25 sets forth each Person who,
as of the date hereof, is, to the best of Company's knowledge, deemed to be an
Affiliate of Company.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to Company that:
SECTION 4.01. Organization and Power. Each of Parent and its
Subsidiaries is a corporation, partnership or other entity duly organized,
validly existing and is in good standing under the laws of the jurisdiction of
its incorporation or organization, and has the requisite corporate or other
power and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have
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a Material Adverse Effect on Parent. Each of Parent and its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect on Parent. Schedule 4.01 sets forth a complete list of Parent's
Significant Subsidiaries. Parent has delivered to Company true and complete
copies of Parent's and Merger Subsidiary's certificate of incorporation and
bylaws as currently in effect.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by Parent and Merger Subsidiary of this Agreement and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby are within the corporate powers of Parent and Merger Subsidiary and have
been duly authorized by all necessary corporate action, including by resolution
of the Board of Directors of Parent. This Agreement has been duly executed and
delivered by each of Parent and Merger Subsidiary and constitutes a valid and
binding agreement of each of Parent and Merger Subsidiary, enforceable against
Parent or Merger Subsidiary, as applicable, in accordance with its terms
(subject to applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and other similar laws affecting creditors' rights generally
from time to time in effect and to general principles of equity, regardless of
whether in a proceeding at equity or at law). The shares of Parent Common Stock
issued pursuant to the Merger, when issued in accordance with the terms hereof,
will be duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.
SECTION 4.03. Governmental Authorization. The execution, delivery
and performance by Parent and Merger Subsidiary of this Agreement, and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby, require no action, by or in respect of, or filing with, any Governmental
Authority other than (a) the filing of a certificate of merger with respect to
the Merger with the Michigan Department of Consumer and Industry Services and
appropriate documents with the relevant authorities of other states in which
Merger Subsidiary is qualified to do business; (b) compliance with any
applicable requirements of the HSR Act; (c) compliance with any applicable
requirements
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of the 1933 Act; (d) compliance with any applicable requirements of the 1934
Act; (e) compliance with any other applicable securities laws; (f) those that
may be required solely by reason of Company's (as opposed to any other third
party's) participation in the transactions contemplated by this Agreement; (g)
the approval of the relevant pharmacy board, alcoholic beverage commission and
lottery commission in Michigan; (h) actions or filings which, if not taken or
made, would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Parent; and (i) filings and notices not
required to be made or given until after the Effective Time.
SECTION 4.04. Non-contravention. Except as set forth on Schedule
4.04, the execution, delivery and performance by Parent and Merger Subsidiary of
this Agreement do not, and the consummation by Parent and Merger Subsidiary of
the transactions contemplated hereby will not (a) contravene or conflict with
the certificate of incorporation, bylaws or similar organizational documents of
Parent or any of its Subsidiaries, (b) assuming compliance with the matters
referred to in Section 4.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Parent or Merger Subsidiary, (c)
constitute a default (or an event which with notice, the lapse of time or both
would become a default) under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Parent or Merger
Subsidiary or to a loss of any benefit to which Parent or Merger Subsidiary is
entitled under any provision of any agreement, contract or other instrument
binding upon Parent or Merger Subsidiary and which either has a term of more
than one year or involves the payment or receipt of money in excess of
$1,000,000 (a "PARENT AGREEMENT") or any license, franchise, permit or other
similar authorization held by Parent or Merger Subsidiary, or (d) result in the
creation or imposition of any Lien on any asset of Parent or Merger Subsidiary,
except for such contraventions, conflicts or violations referred to in clause
(b) or defaults, rights of termination, cancellation or acceleration, losses or
Liens referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on Parent.
SECTION 4.05. Capitalization of Parent. (a) The authorized capital
stock of Parent consists of 300,000,000 shares of Parent Common Stock (subject
to any changes in the
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capital structure of Parent after the date hereof and prior to the Effective
Date that would cause an appropriate adjustment pursuant to Section 1.06),
120,619 shares of Cumulative Preferred Stock, par value $0.01 per share (the
"PARENT PREFERRED STOCK"), and 50,000,000 shares of Preference Stock, par value
$1 per share (the "PARENT ESOP PREFERENCE STOCK"). As of the close of business
on December 31, 1997, (i) 172,802,881 shares of Parent Common Stock are issued
and outstanding, 5,680,101 shares of Parent Common Stock are held in Parent's
treasury, 6,160,452 shares of Parent Common Stock are reserved for issuance upon
conversion of shares of Parent ESOP Preference Stock, 9,863,709 shares of Parent
Common Stock are reserved for additional grants under option and other
stock-based plans and 5,395,082 shares of Parent Common Stock are reserved for
issuance pursuant to options previously granted pursuant to Parent option plans,
(ii) 5,324,504 shares of Parent ESOP Preference Stock are issued and
outstanding, and (iii) no shares of Parent Preferred Stock are issued or
outstanding. All the outstanding shares of Parent's capital stock are, and all
shares which may be issued pursuant to Parent option plans will be, when issued
in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and non-assessable. Except as set forth in this Section 4.05,
except for the transactions contemplated by this Agreement (including those
permitted in Section 5.02(d)), and except for changes since December 31, 1997
resulting from the exercise of employee and director stock options outstanding
on such date, as of the date hereof, there are outstanding (x) no shares of
capital stock or other voting securities of Parent, (y) no securities of Parent
convertible into or exchangeable for shares of capital stock or voting
securities of Parent, and (z) no options, warrants or other rights to acquire
from Parent, and no preemptive or similar rights, subscriptions or other rights,
convertible securities, agreements, arrangements or commitments of any
character, relating to the capital stock of Parent, obligating Parent to issue,
transfer or sell, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Parent or
obligating Parent to grant, extend or enter into any such option, warrant,
subscription or other right, convertible security, agreement, arrangement or
commitment (the items in clauses (x), (y) and (z) being referred to collectively
as the "PARENT SECURITIES"). None of Parent or its Subsidiaries has any
contractual obligation to redeem, repurchase or otherwise acquire any Parent
Securities or any
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Parent Subsidiary Securities, including as a result of the transactions
contemplated by this Agreement.
(b) Except for the provisions relating to the voting of Parent's
ESOP Preference Stock by the applicable trustee in accordance with the
instructions of plan participants, there are no voting trusts or other
agreements or understandings to which Parent or any Subsidiary of Parent is a
party with respect to the voting of the capital stock of Parent or any
Subsidiary of Parent.
SECTION 4.06. Capitalization of Subsidiaries. Except as set forth in
Schedule 4.06, all of the outstanding shares of capital stock of, or other
ownership interests in, each Subsidiary of Parent, is owned by Parent, directly
or indirectly, free and clear of any Lien (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no outstanding (i) securities of Parent or any
Subsidiary of Parent convertible into or exchangeable for shares of capital
stock or other voting securities or ownership interests in any Subsidiary of
Parent, or (ii) options or other rights to acquire from Parent or any Subsidiary
of Parent, and no other obligation of Parent or any Subsidiary of Parent to
issue, any capital stock, voting securities or other ownership interests in, or
any securities convertible into or exchangeable for, any capital stock, voting
securities or ownership interests in, any Subsidiary of Parent (the items in
clauses (i) and (ii) being referred to collectively as the "PARENT SUBSIDIARY
SECURITIES"). The authorized capital stock of Merger Subsidiary consists of
60,000 shares of Merger Subsidiary Common Stock, of which 100 shares are
outstanding. The number of shares of Merger Subsidiary Common Stock outstanding
is not subject to change prior to the Effective Time.
SECTION 4.07. SEC Filings. (a) Parent has filed all required
reports, schedules, forms, statements and other documents with the SEC since
January 1, 1996 (the "PARENT SEC DOCUMENTS").
(b) As of its filing date, each Parent SEC Document filed pursuant
to the 1934 Act did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except to the extent that such
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statements have been modified or superseded by a later filed Parent SEC
Document.
(c) Each Parent SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act as of the
date such registration statement or amendment became effective did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, except to the extent that such statements have been modified or
superseded by a later filed Parent SEC Document.
SECTION 4.08. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial statements of
Parent included in Parent's Current Report on Form 8-K (filed on July 17, 1997)
for the fiscal year ended December 31, 1996 (the "PARENT 8-K") and its Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1997 have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to normal year-end
adjustments in the case of any unaudited interim financial statements). For
purposes of this Agreement, "PARENT BALANCE SHEET" means the consolidated
balance sheet of Parent as of December 31, 1996 set forth in the Parent 8-K.
SECTION 4.09. Disclosure Documents. (a) The Registration Statement
on Form S-4 of Parent (the "FORM S- 4") to be filed under the 1933 Act relating
to the issuance of Parent Common Stock in the Merger, that may be required to be
filed with the SEC in connection with the issuance of shares of Parent Common
Stock pursuant to the Merger and any amendments or supplements thereto, will,
when filed, subject to the last sentence of Section 4.09(b), comply as to form
in all material respects with the applicable requirements of the 1933 Act.
(b) Neither the Form S-4 nor any amendment or supplement thereto
will at the time it becomes effective under the 1933 Act or at the Effective
Time contain any
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untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading. No
representation or warranty is made by Parent in this Section 4.09 with respect
to statements made or incorporated by reference therein based on information
supplied by Company for inclusion or incorporation by reference in the Form S-4.
SECTION 4.10. Information Supplied. None of the information supplied
or to be supplied by Parent for inclusion or incorporation by reference in the
Company Proxy Statement or any amendment or supplement thereto will, at the date
the Company Proxy Statement or any amendment or supplement thereto is first
mailed to stockholders of Company and at the time such stockholders vote on the
adoption and approval of this Agreement and the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.11. Absence of Certain Changes. Except as disclosed in the
Parent SEC Documents filed prior to the date of this Agreement or as disclosed
in Schedule 4.11 and except in connection with the Permitted Parent Transactions
(as hereinafter defined), since September 30, 1997, Parent and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development which, individually or in
the aggregate, has had or would be reasonably likely to have a Material
Adverse Effect on Parent, except for general economic changes and changes
that affect the industry of Parent or any of its Subsidiaries generally;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of Parent
(other than payment of Parent's regular quarterly cash dividend on Parent
Common Stock, payment of required dividends on Parent ESOP Preference
Stock and any other changes in the capital structure of Parent that would
be reflected by an appropriate adjustment pursuant to Section 1.06) or any
repurchase, redemption or other acquisition by Parent or any Subsidiary of
Parent of any amount of outstanding shares of capital stock or other
equity
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securities of, or other ownership interests in, Parent or any Subsidiary
of Parent;
(c) any amendment of any term of any outstanding security of Parent
or any Subsidiary of Parent that would materially increase the obligations
of Parent or such Subsidiary under such security;
(d) (x) any incurrence or assumption by Parent or any Subsidiary of
Parent of any indebtedness for borrowed money other than under existing
credit facilities (or any renewals, replacements or extensions thereof
that do not materially increase the commitments thereunder except to the
extent of the amount required to refinance any indebtedness for borrowed
money of Company and its Subsidiaries as of the Closing Date) (A) in the
ordinary course of business consistent with past practices (it being
understood that any indebtedness incurred prior to the date hereof in
respect of capital expenditures shall be considered to have been in the
ordinary course of business consistent with past practice) or (B) in
connection with the transactions contemplated by this Agreement, or (y)
any guarantee, endorsement or other incurrence or assumption of liability
(whether directly, contingently or otherwise) by Parent or any Subsidiary
of Parent for the obligations of any other Person (other than any
Subsidiary of Parent), other than in the ordinary course of business
consistent with past practice or in connection with obligations of Company
and its Subsidiaries assumed at the Effective Time;
(e) any creation or assumption by Parent or any Subsidiary of Parent
of any Lien on any material asset of Parent or any Subsidiary of Parent
other than in the ordinary course of business consistent with past
practices;
(f) any making of any loan, advance or capital contribution to or
material investment in any Person by Parent or any Subsidiary of Parent
other than (i) loans, advances or capital contributions to or investments
in wholly-owned Subsidiaries of Parent or (ii) loans or advances to
employees of Parent or any Subsidiary of Parent made in the ordinary
course of business consistent with past practices;
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(g) (i) any contract or agreement entered into by Parent or any
Subsidiary of Parent on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business or (ii) any
modification, amendment, assignment, termination or relinquishment by
Parent or any Subsidiary of Parent of any contract, license or other right
(including any insurance policy naming it as a beneficiary or a loss
payable payee) that would be reasonably likely to have a Material Adverse
Effect on Parent, other than, in the case of (i) and (ii), transactions,
commitments, contracts or agreements in the ordinary course of business
consistent with past practice and those contemplated by this Agreement and
other than dispositions of stores acquired in the Revco transaction; or
(h) any material change in any method of accounting or accounting
principles or practice by Parent or any Subsidiary of Parent, except for
any such change required by reason of a change in GAAP.
SECTION 4.12. No Undisclosed Material Liabilities. There have been
no liabilities or obligations (whether pursuant to contracts or otherwise) of
any kind whatsoever incurred by Parent or any Subsidiary of Parent since
December 31, 1996, whether accrued, contingent, absolute, determined,
determinable or otherwise, other than:
(a) liabilities or obligations (i) disclosed or provided for in the
Parent Balance Sheet or in the notes thereto, (ii) disclosed in the Parent
SEC Documents filed prior to the date hereof or (iii) disclosed in
Schedule 4.12;
(b) liabilities or obligations which, individually and in the
aggregate, have not had and are not reasonably likely to have a Material
Adverse Effect on Parent; or
(c) liabilities or obligations under this Agreement or incurred in
connection with the transactions contemplated hereby.
SECTION 4.13. Litigation. Except as disclosed in the Parent SEC
Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of Parent,
threatened
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against or affecting, Parent or any Subsidiary of Parent or any of their
respective properties before any Governmental Authority which, individually or
in the aggregate, would be reasonably likely to have a Material Adverse Effect
on Parent.
SECTION 4.14. Taxes. (a) Parent and each of its Subsidiaries, and
each affiliated group (within the meaning of Section 1504 of the Code) of which
Company or any Subsidiary is or has been a member, has timely filed (or has had
timely filed on its behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by it prior to or as
of the Effective Time, and all such material Tax Returns are, or will be at the
time of filing, true, correct and complete in all material respects;
(b) Parent and each of its Subsidiaries has paid (or has had paid on
its behalf) or, where payment is not yet due, has established or will timely
establish (or has had or will timely have established on its behalf and for its
sole benefit and recourse) an adequate accrual in accordance with GAAP for the
payment of, all material Taxes due with respect to any period ending prior to or
as of the Effective Time;
(c) The federal income Tax Returns of Parent and its Subsidiaries
have been examined by and settled with the Service (or the applicable statutes
of limitation for the assessment of federal income Taxes for such periods have
expired) for all years through 1990;
(d) There are no material Liens or encumbrances for Taxes on any of
the assets of Parent or its Subsidiaries (other than for current Taxes not yet
due and payable);
(e) Parent and its Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes; and
(f) No federal, state, local or foreign audits or administrative
proceedings are presently pending with regard to any material Taxes or Tax
Return of Parent or its Subsidiaries and none of them has received a written
notice of any proposed audit or proceeding regarding any pending audit or
proceeding.
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SECTION 4.15. Employee Benefits, ERISA. (a) Except as set forth in
Schedule 4.15, there are no material employee benefit plans (including any plans
for the benefit of directors or former directors), arrangements, practices,
contracts or agreements (including employment agreements and severance
agreements, incentive compensation, bonus, stock option, stock appreciation
rights and stock purchase plans) of any type (including plans described in
Section 3(3) of ERISA), maintained by Parent, any of its Subsidiaries or any
ERISA Affiliate, that together with Parent would be deemed a "controlled group"
within the meaning of Section 4001(a)(14) of ERISA, or with respect to which
Parent or any of its Subsidiaries has or may have a liability (the "PARENT
BENEFIT PLANS"). Since September 30, 1997 there has been no change, amendment,
modification to, or adoption of, any Parent Benefit Plan, in each case, that has
had, or would be reasonably likely to have, a Material Adverse Effect on Parent.
(b) With respect to each Parent Benefit Plan, except as would not,
individually or in the aggregate, have a Material Adverse Effect on Parent: (i)
if intended to qualify under Section 401(a), 401(k) or 403(a) of the Code, such
plan so qualifies, and its trust is exempt from taxation under Section 501(a) of
the Code; (ii) such plan has been administered in accordance with its terms and
applicable law; (iii) no breaches of fiduciary duty have occurred; (iv) no
prohibited transaction within the meaning of Section 406 of ERISA has occurred;
(v) as of the date of this Agreement, no Lien imposed under the Code or ERISA
exists; and (vi) all contributions and premiums due (including any extensions
for such contributions and premiums) have been made in full.
(c) None of the Parent Benefit Plans has incurred any "accumulated
funding deficiency", as such term is defined in Section 412 of the Code, whether
or not waived.
(d) Neither Parent nor any ERISA Affiliate has incurred any
liability under Title IV of ERISA (including Sections 4063-4064 and 4069 of
ERISA) that has not been satisfied in full except as, individually or in the
aggregate, would not have or would not be reasonably likely to have a Material
Adverse Effect on Parent or that has not been reflected on Parent's consolidated
financial statements.
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(e) With respect to each Parent Benefit Plan that is a "welfare
plan" (as defined in Section 3(l) of ERISA), no such plan provides medical or
death benefits with respect to current or former employees of Parent or any of
its Subsidiaries beyond their termination of employment, other than as may be
required under Part 6 of Title I of ERISA and at the expense of the participant
or the participant's beneficiary and except as would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Parent.
(f) The consummation of the transactions contemplated by this
Agreement will not entitle any individual to severance pay or any tax "gross-up"
payments with respect to the imposition of any tax pursuant to Section 4999 of
the Code or accelerate the time of payment or vesting, or increase the amount,
of compensation or benefits due to any individual with respect to any Parent
Benefit Plan.
(g) Except as set forth in Schedule 4.15(g), there is no Parent
Benefit Plan that is a "multiemployer plan", as such term is defined in Section
3(37) of ERISA, or which is covered by Section 4063 or 4064 of ERISA.
(h) Except as set forth in Schedule 4.15(h), neither Parent nor any
of its Significant Subsidiaries is a party to any collective bargaining
agreement. Except as would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Parent, (i) there is no labor
strike, slowdown or work stoppage or lockout against Parent or any of its
Significant Subsidiaries and (ii) there is no unfair labor practice charge or
complaint against or pending before the National Labor Relations Board. As of
the date of this Agreement, there is no representation claim or petition pending
before the National Labor Relations Board and, to the knowledge of Parent, no
question concerning representation exists with respect to the employees of
Parent or any of its Significant Subsidiaries.
SECTION 4.16. Compliance with Laws; No Default; No Non-Competes. (a)
Neither Parent nor any of its Subsidiaries is in violation of or, since December
31, 1996, has been in violation of or has failed to comply with, any statute,
law, ordinance, regulation, rule, judgment, decree, order, writ, injunction,
permit or license or other authorization or approval of any Governmental
Authority
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applicable to its business or operations, except for violations and failures to
comply that would not, individually or in the aggregate, be reasonably likely to
result in a Material Adverse Effect on Parent.
(b) Each Parent Agreement is a valid, binding and enforceable
obligation of Parent and in full force and effect, except where the failure to
be valid, binding and enforceable and in full force and effect would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. None
of Parent or any of its Subsidiaries is in default or violation of any term,
condition or provision of (i) its respective certificate of incorporation or
by-laws or similar organizational documents or (ii) any Parent Agreement,
except, in the case of clause (ii) above, for defaults or violations that,
individually or in the aggregate, have not had and would not be reasonably
likely to have a Material Adverse Effect on Parent. Parent has all permits and
licenses (including pharmaceutical and liquor licenses and permits) necessary to
carry on the business being conducted at each store location, except where the
failure to have such permit or license would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect on Parent.
Neither Parent nor any Subsidiary of Parent is a party to any agreement that
expressly limits the ability of Parent or any Subsidiary of Parent to compete in
or conduct any line of business or compete with any Person or in any geographic
area or during any period of time except to the extent that any such limitation
would not be reasonably likely to have a Material Adverse Effect on Parent after
giving effect to the Merger.
SECTION 4.17. Finders' Fees. Except for Credit Suisse First Boston
Corporation, no investment banker, broker, finder, other intermediary or other
Person is entitled to any fee or commission from Parent or any Subsidiary of
Parent upon consummation of the transactions contemplated by this Agreement.
SECTION 4.18. Environmental Matters. (a) Except as set forth in the
Parent 8-K:
(i) no notice, notification, demand, request for
information, citation, summons or order has been received by, no
complaint has been filed against, no penalty has been assessed
against, and no investigation, action, claim, suit, proceeding or
review is pending or, to the knowledge of
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Parent or any Subsidiary of Parent, is threatened by any Person,
against Parent or any Subsidiary of Parent with respect to any
matters relating to or arising out of any Environmental Law which,
individually or in the aggregate, would be reasonably likely to have
a Material Adverse Effect on Parent;
(ii) no Hazardous Substance has been discharged, disposed
of, dumped, injected, pumped, deposited, spilled, leaked, emitted or
released at, on or under any property now or, to the knowledge of
Parent, previously owned, leased or operated by Parent or any
Subsidiary of Parent, which circumstance, individually or in the
aggregate, would be reasonably likely to have a Material Adverse
Effect on Parent; and
(iii) there are no Environmental Liabilities that,
individually or in the aggregate, have had or would be reasonably
likely to have a Material Adverse Effect on Parent.
(b) For purposes of this Section, capitalized terms used shall have
the meanings assigned to them in Section 3.18(b), except that in all cases the
word "Parent" shall be substituted for the word "Company".
SECTION 4.19. Assets. The assets, properties, rights and contracts,
including (as applicable), title or leaseholds thereto, of Parent and its
Subsidiaries, taken as a whole, are sufficient to permit Parent and its
Subsidiaries to conduct their business as currently being conducted with only
such exceptions as would not be reasonably likely to have a Material Adverse
Effect on Parent. All material real property owned by Parent and its
Subsidiaries is owned free and clear of all Liens, except (A) those reflected or
reserved against in the latest balance sheet (or notes thereto) of Parent
included in the Parent SEC Documents filed prior to the date hereof, (B) taxes
and general and special assessments not in default and payable without penalty
or interest, (C) Liens disclosed in Schedule 4.19 and (D) Liens that do not
materially adversely interfere with any present use of such property.
SECTION 4.20. Accounting Matters. Neither Parent nor any of its
Affiliates has taken or agreed to take any action or is aware of any fact or
circumstance that would
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prevent the Merger from qualifying for "pooling of interests" accounting
treatment as described in Section 3.22(a).
SECTION 4.21. Pooling Letter. Parent has received a letter from KPMG
Peat Marwick, LLP dated as of the date hereof and addressed to Parent, a copy of
which has been delivered to Company, stating that, as of the date hereof, based
on their best judgment regarding the application of GAAP and the published rules
and regulations of the SEC relative to matters of accounting for business
combinations, no conditions exist which would preclude Parent from accounting
for the Merger as a "pooling of interests".
SECTION 4.22. Takeover Statutes. To the best of Parent's knowledge,
no Takeover Statute applicable to Parent or any of its Subsidiaries is
applicable to the Merger or the other transactions contemplated hereby.
SECTION 4.23. Merger Subsidiary. Merger Subsidiary is a newly-formed
wholly-owned Subsidiary of Parent that has engaged in no business activities
other than as specifically contemplated by this Agreement.
ARTICLE 5
COVENANTS
SECTION 5.01. Conduct of Company. Company covenants and agrees that,
from the date hereof until the Effective Time, except as expressly provided
otherwise in this Agreement, including Schedules 3.11 and 5.01 hereto, or as
reasonably necessary for Company to fulfill its obligations hereunder, Company
and its Subsidiaries shall conduct their business in the ordinary course
consistent with past practice and shall use their best efforts to preserve
intact their business organizations and relationships with customers, suppliers,
creditors and business partners and shall use their reasonable efforts to keep
available the services of their present officers and employees. Without limiting
the generality of the foregoing, from the date hereof until the Effective Time,
without the prior written approval of Parent (which approval shall not be
unreasonably withheld):
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(a) Company will not adopt or propose any change in its articles of
incorporation or in its bylaws, other than changes effected to facilitate
the Merger;
(b) Company will not, and will not permit any Subsidiary of Company
to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization of Company or any of its Subsidiaries (other
than a liquidation or dissolution of any Subsidiary or a merger or
consolidation between wholly owned Subsidiaries);
(c) Company will not, and will not permit any Subsidiary of Company
to, make any investment in or acquisition of any business or stores of any
Person or any material amount of assets (other than inventory), except for
(i) acquisitions for cash of drug store businesses comprising not more
than ten stores in any such business acquisition and (ii) any capital
expenditure permitted by Section 5.01(k);
(d) Company will not, and will not permit any Subsidiary of Company
to, sell, lease, license, close, shut down or otherwise dispose of any
assets (other than inventory) or stores, except (i) pursuant to existing
contracts or commitments listed on Schedule 5.01 or (ii) sales or other
dispositions of assets or stores in the ordinary course of business
consistent with past practice;
(e) Company will not, and will not permit any Subsidiary of Company
to, declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to its capital stock other than
(i) cash dividends payable by Company in an aggregate amount not in excess
of $.06 per share per calendar quarter and (ii) dividends paid by any
Subsidiary of Company to Company or any wholly-owned Subsidiary of
Company;
(f) Company will not, and will not permit any Subsidiary of Company
to, issue, sell, transfer, pledge, dispose of or encumber any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class or series of Company or its Subsidiaries,
other
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than (i) issuances pursuant to the exercise of stock-based awards or
options (including under the plans described in Section 3.05(a)) that are
outstanding on the date hereof and are referred to in Section 3.05, (ii)
Shares that may become issuable under Company's Employee Stock Purchase
Plan, (iii) issuances by any Subsidiary of Company to Company or any
wholly-owned Subsidiary of Company, (iv) Shares issuable pursuant to
Company's 401(k) Savings Plan and (v) Shares issuable pursuant to options
granted to newly hired management level employees in accordance with
Company's past practices;
(g) Company will not, and will not permit any Subsidiary of Company
to, redeem, purchase or otherwise acquire directly or indirectly any of
Company's capital stock;
(h) Company will not, and will not permit any Subsidiary of Company
to, close, shut down, or otherwise eliminate Company's distribution
center;
(i) Company will not, and will not permit any Subsidiary of Company
to, move the location, close, shut down or otherwise eliminate Company's
headquarters or effect a general staff reduction at such headquarters;
(j) except in connection with investments or acquisitions permitted
by Section 5.01(c) or 5.01(d), Company will not, and will not permit any
Subsidiary of Company to, (i) enter into (or commit to enter into) any new
lease or (ii) purchase or acquire or enter into any agreement to purchase
or acquire any real estate (except, in the case of clauses (i) and (ii),
pursuant to commitments existing and disclosed to Parent in writing prior
to the date hereof or in the ordinary course of business consistent with
past practice);
(k) Company will not, and will not permit any Subsidiary of Company
to, make or commit to make any capital expenditure (including for store
remodelings, store signage and information systems) except for (i)
individual capital expenditure projects or items not exceeding $1,000,000
per project or item and $5,000,000 in the aggregate in respect of all such
items or projects, (ii) those projects or items committed to prior to the
date hereof and disclosed in writing to
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Parent on Schedule 5.01, (iii) expenditures covered under Section 5.01(c)
or 5.01(j), and (iv) expenditures pertaining to the acquisition of drug
stores consistent with Section 5.01(c) or the opening of drug stores in
the ordinary course of business consistent with past practice;
(l) Company will not, and will not permit any Subsidiary of Company
to, change any tax election, change any annual tax accounting period,
change any method of tax accounting, file any amended Tax Return, enter
into any closing agreement, settle any Tax claim or assessment, surrender
any right to claim a Tax refund or consent to any extension or waiver
(other than a reasonable extension or waiver) of the limitations period
applicable to any Tax claim or assessment, if any such action in this
clause (1) would have the effect of materially increasing the aggregate
Tax liability for any taxable year or materially reducing the aggregate
Tax assets of Company and its Subsidiaries, taken as a whole;
(m) Company will not, and will not permit any Subsidiary of Company
to, increase the compensation or benefits of any director, officer or
employee, except for normal increases in the ordinary course of business
consistent with past practice or as required under applicable law or
existing agreement or commitment;
(n) Company will not, and will not permit any Subsidiary of Company
to, agree or commit to do any of the foregoing; and
(o) Company will not, and will not permit any Subsidiary of Company
to take or agree or commit to take any action that would make any
representation and warranty of Company hereunder inaccurate in any respect
at, or as of any time prior to, the Effective Time.
SECTION 5.02. Conduct of Parent. From the date hereof until the
Effective Time, except as expressly provided otherwise in this Agreement,
including Schedule 5.02 hereto, or as reasonably necessary for Parent to fulfill
its obligations hereunder, Parent and its Subsidiaries shall conduct their
business in the ordinary course consistent with past practice and shall use
their best efforts to preserve intact their business organizations
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and relationships with customers, suppliers, creditors and business partners and
shall use their reasonable efforts to keep available the services of their
present officers and employees. It is understood that nothing in this Agreement
will restrict any acquisition or disposition by Parent or any of its
Subsidiaries, in one or more transactions, of any drug store or any drug store
or related business (the "PERMITTED PARENT TRANSACTIONS"). Without limiting the
generality of the foregoing but subject to the preceding sentence, from the date
hereof until the Effective Time, without the prior written approval of Company
(which approval shall not be unreasonably withheld):
(a) Parent will not adopt or propose any change in its certificate
of incorporation or any material change in its bylaws, except for the
creation of a series of preferred stock in connection with the adoption of
a shareholder rights plan or any increase in its authorized capital stock;
(b) Parent will not, and will not permit any Subsidiary of Parent
to, adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization of Parent or any of its Subsidiaries (other
than a liquidation or dissolution of any Subsidiary or a merger or
consolidation between wholly owned Subsidiaries);
(c) Parent will not, and will not permit any Subsidiary of Parent
to, issue, sell, transfer, pledge, dispose of or encumber any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares
of capital stock of any class or series of Parent or its Subsidiaries,
other than (u) issuances of shares of Parent Common Stock in connection
with any Permitted Parent Transaction, (v) issuances by any Subsidiary of
Parent to Parent or any wholly-owned Subsidiary of Parent, (w) preferred
stock purchase rights and related preferred stock in connection with the
adoption of a shareholder rights plan, (x) issuances pursuant to the
exercise of stock-based awards or options, including under the plans
described in Section 4.05(a), outstanding on the date hereof or granted as
contemplated in clause (z) below, (y) issuances of shares of Parent Common
Stock upon conversion of shares of Parent ESOP Preference Stock
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outstanding on the date hereof, and (z) any grant of options or other
stock based awards in respect of Parent Common Stock to employees or
directors of Parent or any of its Subsidiaries under Parent's employee and
director stock option and other stock-based plans;
(d) Parent will not, and will not permit any Subsidiary of Parent
to, declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to its capital stock other than
(i) regular quarterly cash dividends on Parent Common Stock, (ii) required
cash dividends on Parent ESOP Preference Stock, (iii) dividends paid by
any Subsidiary of Parent to Parent or any wholly-owned Subsidiary of
Parent and (iv) in connection with any other changes in the capital
structure of Parent that would cause an appropriate adjustment pursuant to
Section 1.06;
(e) Parent will not, and will not permit any Subsidiary of Parent
to, redeem, purchase or otherwise acquire directly or indirectly any of
Parent's capital stock;
(f) Parent will not, and will not permit any Subsidiary of Parent
to, agree or commit to do any of the foregoing; and(g) Parent will not,
and will not permit any Subsidiary of Parent to take or agree or commit to
take any action that would make any representation and warranty of Parent
hereunder inaccurate in any respect at, or as of any time prior to, the
Effective Time.
SECTION 5.03. Stockholder Meeting; Proxy Materials; Form S-4. (a)
Company shall cause a meeting of its shareholders (the "COMPANY STOCKHOLDER
MEETING") to be duly called and held as soon as reasonably practicable after the
date of this Agreement for the purpose of voting on the approval and adoption of
this Agreement (the "COMPANY STOCKHOLDER APPROVAL"). Except as provided in the
next sentence, the Board of Directors of Company shall recommend approval and
adoption of this Agreement by Company's shareholders. The Board of Directors of
Company shall be permitted to (i) not recommend to Company's shareholders that
they give the Company Stockholder Approval or (ii) withdraw or modify in a
manner adverse to Parent its recommendation to Company's shareholders that they
give the Company Stockholder Approval, only (x) if and to the extent
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that (i) an unsolicited bona fide Superior Proposal (as hereinafter defined)
from another Person is pending at such time and (ii) the Board of Directors of
the Company by a majority vote determines in its good faith judgment that it is
necessary to so withdraw or modify its recommendation to comply with its
fiduciary duty to shareholders under applicable law, after receiving the advice
of an outside legal counsel, and (y) if Company, its Subsidiaries and the
officers, directors, employees, investment bankers, consultants and other agents
of Company and its Subsidiaries and the Affiliates of Company over which Company
exercises control complied with their obligations set forth in Section 5.05. In
connection with such shareholder meeting, Company (x) will promptly prepare and
file with the SEC, will use its reasonable best efforts to have cleared by the
SEC and will thereafter mail to its shareholders as promptly as practicable the
Company Proxy Statement and all other proxy materials for such meeting, (y) will
use its reasonable best efforts, subject to the immediately preceding sentence,
to obtain the Company Stockholder Approval and (z) will otherwise comply with
all legal requirements applicable to such meeting.
(b) Subject to the terms and conditions of this Agreement and unless
the Board of Directors of Company shall take any action permitted by the third
sentence of paragraph (a) above, Parent shall (i) promptly prepare and file with
the SEC the Form S-4 with respect to the Parent Common Stock issuable in
connection with the Merger and take any action required to be taken under
applicable state securities laws and the regulations of the NYSE in connection
with such issuance of Parent Common Stock and (ii) use its reasonable best
efforts to have the Form S-4 declared effective under the 1933 Act as promptly
as practicable after the Form S-4 is filed.
SECTION 5.04. Access to Information. (a) To the extent permitted by
applicable law, from the date hereof until the Effective Time, Company will give
Parent, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the offices,
properties, books and records of Company and its Subsidiaries, will furnish to
Parent, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request and will instruct Company's employees, auditors,
counsel and financial advisors to cooperate with Parent in its
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investigation of the business of Company and its Subsidiaries; provided that no
investigation pursuant to this Section shall affect any representation or
warranty given by Company to Parent hereunder. The foregoing information shall
be held in confidence to the extent required by, and in accordance with, the
provisions of the letter agreement dated January 27, 1998, executed by Parent
and Goldman, Sachs & Co. on behalf of Company (the "PARENT CONFIDENTIALITY
AGREEMENT").
(b) To the extent permitted by applicable law, from the date hereof
until the Effective Time, Parent will give Company, its counsel, financial
advisors, auditors and other authorized representatives reasonable access during
normal business hours to the offices, properties, books and records of Parent
and its Subsidiaries, will furnish to Company, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
Parent's employees, auditors, counsel and financial advisors to cooperate with
Company in its investigation of the business of Parent and its Subsidiaries;
provided that no investigation pursuant to this Section shall affect any
representation or warranty given by Parent to Company hereunder. Such
information shall be held in confidence to the extent required by, and in
accordance with, the letter agreement concerning the confidentiality obligations
of Parent between Company and Parent (the "COMPANY CONFIDENTIALITY AGREEMENT").
SECTION 5.05. No Solicitation. From the date hereof until the
termination hereof, Company will not and will cause its Subsidiaries and the
officers, directors, employees, investment bankers, consultants and other agents
of Company and its Subsidiaries and the Affiliates of Company over which Company
exercises control not to, directly or indirectly, take any action to solicit,
initiate, encourage or facilitate the making of any Acquisition Proposal or any
inquiry with respect thereto or engage in discussions or negotiations with any
Person with respect thereto, or disclose any non-public information relating to
Company or any Subsidiary of Company or afford access to the properties, books
or records of Company or any Subsidiary of Company to, any Person that has made
or is considering making any Acquisition Proposal; provided that nothing
contained in this Section 5.05 shall prevent Company from furnishing non-public
information to, or entering into discussions or negotiations with, any Person in
connection
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with an unsolicited bona fide Acquisition Proposal received from such Person so
long as prior to furnishing non-public information to, or entering into
discussions or negotiations with, such Person, (i) the Board of Directors of the
Company by a majority vote determines in its good faith judgement that it is
necessary to do so to comply with its fiduciary duty to shareholders under
applicable law, after receiving the advice of an outside legal counsel, and (ii)
Company receives from such Person an executed confidentiality agreement with
terms no less favorable to Company than those contained in the Parent
Confidentiality Agreement. Nothing contained in this Agreement shall prevent the
Board of Directors of Company from complying with Rule 14e-2 under the 1934 Act
with regard to an Acquisition Proposal; provided that the Board of Directors of
Company shall not recommend that the shareholders of Company tender their shares
in connection with a tender offer except to the extent the Board of Directors of
Company by a majority vote determines in its good faith judgment that such a
recommendation is required to comply with the fiduciary duties of the Board of
Directors to shareholders under applicable law, after receiving the advice of an
outside legal counsel. Company will promptly (and in no event later than 24
hours after receipt of any Acquisition Proposal) notify (which notice shall be
provided orally and in writing and shall identify the Person making such
Acquisition Proposal and set forth the material terms thereof) Parent after
receipt of any Acquisition Proposal, indication that any Person is considering
making an Acquisition Proposal or any request for nonpublic information relating
to Company or any Subsidiary of Company or for access to the properties, books
or records of Company or any Subsidiary of Company by any Person that may be
considering making, or has made, an Acquisition Proposal. Company will keep
Parent fully informed of the status and material terms of any such Acquisition
Proposal or request. In furtherance and not in limitation of the foregoing,
Company shall give Parent at least 24 hours' advance notice of any information
to be supplied to, and at least 48 hours' advance notice of any agreement to be
entered into with, any Person making such Acquisition Proposal (attaching the
most current version of such agreement to such notice). Company will, and will
cause its Subsidiaries and the officers, directors, employees and other agents
of Company and its Subsidiaries and the Affiliates of Company over which Company
exercises control to, immediately cease and cause to be terminated all
discussions and negotiations, if any, that have taken place
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prior to the date hereof with any parties with respect to any Acquisition
Proposal.
For purposes of this Agreement, "ACQUISITION PROPOSAL" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Company or any Subsidiary of Company or the
acquisition of any equity interest in, or a substantial portion of the assets
of, Company or any Subsidiary of Company, other than the transactions
contemplated by this Agreement and other than an offer for a bona fide de
minimis equity interest, or for an amount of assets not material to Company and
its Subsidiaries taken as a whole, that Company has no reason to believe would
lead to a change of control Company (or to the acquisition of a substantial
portion of the assets of Company and its Subsidiaries). For purposes of this
Agreement, "SUPERIOR PROPOSAL" means any bona fide Acquisition Proposal for a
majority or all of the outstanding Shares on terms that the Board of Directors
of Company determines in its good faith judgment (based on the written advice of
a financial advisor of nationally recognized reputation, taking into account all
the terms and conditions of the Acquisition Proposal, including any breakup
fees, expense reimbursement provisions and conditions to consummation) are more
favorable and provide greater value to all Company's stockholders than this
Agreement and the Merger taken as a whole.
SECTION 5.06. Notices of Certain Events. (a) Company and Parent
shall promptly notify each other of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement; and
(ii) any notice or other communication from any
Governmental Authority in connection with the transactions
contemplated by this Agreement.
(b) Company shall promptly notify Parent of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge threatened
against, relating to or involving or otherwise affecting Company or any
Subsidiary of Company which, if pending on the date of this Agreement, would
have been required to have been disclosed
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pursuant to Section 3.13 or which relate to the consummation of the transactions
contemplated by this Agreement.
(c) Parent shall promptly notify Company of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge threatened
against, relating to or involving or otherwise affecting Parent or any
Subsidiary of Parent which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 4.13 or which relate to
the consummation of the transactions contemplated by this Agreement.
SECTION 5.07. Reasonable Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the Merger and the other transactions contemplated by this Agreement.
In furtherance and not in limitation of the foregoing, each party hereto agrees
to make an appropriate filing of a Notification and Report Form pursuant to the
HSR Act with respect to the transactions contemplated hereby as promptly as
practicable and in any event within ten business days of the date hereof and to
supply as promptly as practicable any additional information and documentary
material that may be requested pursuant to the HSR Act and to take all other
actions necessary to cause the expiration or termination of the applicable
waiting periods under the HSR Act as soon as practicable.
(b) Each of Parent and Company shall, in connection with the efforts
referenced in Section 5.07(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Antitrust Law, use its reasonable best efforts to (i) cooperate
in all respects with each other in connection with any filing or submission and
in connection with any investigation or other inquiry, including any proceeding
initiated by a private party; (ii) keep the other party informed in all material
respects of any material communication received by such party from, or given by
such party to, the Federal Trade Commission (the "FTC"), the Antitrust Division
of the Department of Justice (the "DOJ") or any other Governmental Authority and
of any material communication received or given in connection with any
proceeding by a private party, in each case regarding any of the transactions
contemplated hereby; and (iii) permit the
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other party to review any material communication given by it to, and consult
with each other in advance of any meeting or conference with, the FTC, the DOJ
or any such other Governmental Authority or, in connection with any proceeding
by a private party, with any other Person. For purposes of this Agreement,
"ANTITRUST LAW" means the Sherman Act, as amended, the Clayton Act, as amended,
the HSR Act, the Federal Trade Commission Act, as amended, and all other
federal, state and foreign, if any, statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade or lessening of competition
through merger or acquisition.
SECTION 5.08. Cooperation. Without limiting the generality of
Section 5.07, Parent and Company shall together, or pursuant to an allocation of
responsibility to be agreed between them, coordinate and cooperate in connection
with the preparation of the Company Proxy Statement and the Form S-4, (ii) in
determining whether any action by or in respect of, or filing with, any
governmental body, agency or official, or authority is required, or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts, in connection with the consummation of the transactions
contemplated by this Agreement, and (iv) in seeking any such actions, consents,
approvals or waivers or making any such filings, furnishing information required
in connection therewith or with the Company Proxy Statement or the Form S-4 and
seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 5.09. Public Announcements. So long as this Agreement is in
effect, Parent and Company will consult with each other before issuing any press
release or making any SEC filing or other public statement with respect to this
Agreement or the transactions contemplated hereby or thereby and, except as may
be required by applicable law, court process or any listing agreement with any
national securities exchange, will not issue any such press release or make any
such SEC filing or other public statement prior to such consultation and
providing the other party with a reasonable opportunity to comment thereon.
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SECTION 5.10. Further Assurances. At and after the Effective Time,
the officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of Company or Merger Subsidiary,
any deeds, bills of sale, assignments or assurances and to take and do, in the
name and on behalf of Company or Merger Subsidiary, any other actions and things
to vest, perfect or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of the rights,
properties or assets of Company acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
SECTION 5.11. Affiliates; Registration Rights. (a) Company shall use
its best efforts to deliver to Parent, within 15 days of the date hereof, a
letter agreement substantially in the form of Exhibit C-1 hereto executed by
each Person listed on Schedule 3.25.
(b) Parent shall use its best efforts to obtain, within 15 days of
the date hereof, a letter agreement substantially in the form of Exhibit C-2
hereto executed by each Person listed on Schedule 5.11.
(c) Prior to the Closing Date, Company shall cause to be delivered
to Parent a letter identifying, to the best of Company's knowledge, all Persons
who are, at the time of the Company Stockholder Meeting described in Section
5.03(a), deemed to be "affiliates" of Company for purposes of Rule 145 under the
1933 Act (the "1933 ACT AFFILIATES"). Company shall use its reasonable best
efforts to cause each Person who is so identified as a 1933 Act Affiliate to
deliver to Parent on or prior to the Closing Date a letter agreement
substantially in the form of Exhibit C-3 to this Agreement.
(d) At or prior to the Effective Time, Parent shall enter into a
Registration Rights Agreement in the form attached as Exhibit B hereto with the
Persons named therein, so long as those Persons who are required to deliver
letter agreements under clauses (a) and (c) above have delivered such letters.
SECTION 5.12. Director and Officer Liability. Parent agrees that at
all times after the Effective Time, it shall, or shall cause the Surviving
Corporation and its Subsidiaries to indemnify each Person who is now, or has
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been at any time prior to the date hereof, a director or officer of Company or
of any Subsidiary of Company, its successors and assigns (individually an
"INDEMNIFIED PARTY" and collectively the "INDEMNIFIED PARTIES"), to the fullest
extent permitted by law, with respect to any claim, liability, loss, damage,
judgment, fine, penalty, amount paid in settlement or compromise, cost or
expense (including reasonable fees and expenses of legal counsel), whenever
asserted or claimed, based in whole or in part on, or arising in whole or in
part out of, any facts or circumstances occurring at or prior to the Effective
Time whether commenced, asserted or claimed before or after the Effective Time,
including liability arising under the 1933 Act, the 1934 Act or state law. In
the event of any claim, liability, loss, damage, judgment, fine, penalty, amount
paid in settlement or compromise, cost or expense described in the preceding
sentence, Parent shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties promptly after statements are received and otherwise
advance to such Indemnified Party upon request reimbursement of documented
expenses reasonably incurred. Parent shall, or shall cause the Surviving
Corporation to, maintain in effect for not less than six years after the
Effective Time the current policies of directors' and officers' liability
insurance maintained by Company and its Subsidiaries on the date hereof
(provided that Parent may substitute therefor policies with reputable and
financially sound carriers having at least the same coverage and amounts thereof
and containing terms and conditions which are no less advantageous to the
Persons currently covered by such policies as insured) with respect to facts or
circumstances occurring at or prior to the Effective Time; provided that if the
aggregate annual premiums for such insurance during such six-year period shall
exceed 200% of the per annum rate of the aggregate premium currently paid by
Company and its Subsidiaries for such insurance on the date of this Agreement,
then Parent shall cause the Surviving Corporation to, and the Surviving
Corporation shall, provide the most advantageous coverage that shall then be
available at an annual premium equal to 200% of such rate. Parent agrees to pay
all expenses (including fees and expenses of counsel) that may be incurred by
any Indemnified Party in successfully enforcing the indemnity or other
obligations under this Section 5.12. The rights under this Section 5.12 are in
addition to rights that an Indemnified Party may have under the articles of
incorporation, bylaws, or other similar organizational documents of Company or
any of its Subsidiaries or the Michigan Law. The rights under this
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Section 5.12 shall survive consummation of the Merger and are expressly intended
to benefit each Indemnified Party.
SECTION 5.13. Obligations of Merger Subsidiary. Parent will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 5.14. Listing of Stock. Parent shall use its best efforts to
cause the shares of Parent Common Stock to be issued in connection with the
Merger to be approved for listing on the NYSE on or prior to the Closing Date,
subject to official notice of issuance.
SECTION 5.15. Antitakeover Statutes. The Company, regardless of any
termination of this Agreement (other than a termination of this Agreement
pursuant to Section 7.01(a) or 7.01(e) hereof), shall not (a) take any action
which, in the reasonable judgment of Parent, would impede, interfere with or
attempt to discourage the transactions contemplated by this Agreement or the
Option Agreement, (b) amend, revoke, withdraw or modify the approval of the
Merger and the other transactions contemplated hereby so as to render the
restrictions of Section 775 through Section 784 of the Michigan Law applicable
to Parent, Merger Subsidiary or their affiliates, or to any business combination
proposed by any of them before or after, or as the result of, the execution and
delivery of the Option Agreement or the acquisition of Company Common Stock
pursuant thereto, (c) opt in to Section 790 through Section 799 of the Michigan
law, or (d) take action rendering the requirements of any of the Sections of the
Michigan Law referred to in this Section 5.15 inapplicable to any other Person
or any business combination between the Company and any other Person or its
affiliates. If any Takeover Statute is or may become applicable to the Merger,
each of Parent and Company shall take such actions as are necessary so that the
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of any Takeover Statute on the Merger.
SECTION 5.16. Tax and Accounting Treatment. Each of Parent and
Company shall not take any action and shall not fail to take any action which
action or failure to act would prevent, or would be reasonably likely to
prevent, the
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Merger from qualifying (A) for "pooling of interests" accounting treatment or
(B) a 368 Reorganization.
SECTION 5.17. Employee Benefits. (a) Subject to Section 1.04,
following the Effective Time, Parent shall, or shall cause the Surviving
Corporation to (i) honor all obligations under employment or severance
agreements of Company or its Subsidiaries and (ii) pay all benefits accrued
through the Effective Time under employee benefit plans, programs, policies and
arrangements of Company or its Subsidiaries in accordance with the terms
thereof. In furtherance and not in limitation of the foregoing, Parent agrees to
provide, or cause the Surviving Corporation to provide, employees of Company who
continue to be employed by the Surviving Corporation or its Subsidiaries as of
the Effective Time ("CONTINUING EMPLOYEES") for a period of not less than one
year following the Effective Time with compensation and benefits no less
favorable in the aggregate than the compensation and benefits provided at the
Effective Time to similarly situated Parent employees. In addition to the
foregoing, for a period of one year following the Effective Time, Parent shall,
or shall cause the Surviving Corporation or its Subsidiaries to, establish and
maintain a plan to provide severance and termination benefits to all non-union
employees of Company and its Subsidiaries. If Continuing Employees are included
in any benefit plan (including provision for vacation) of Parent or its
Subsidiaries, the Continuing Employees shall receive credit for service prior to
the Effective Time with the Company and its Subsidiaries to the same extent such
service by employees of Parent or its Subsidiaries would count for purposes of
eligibility, vesting, eligibility for retirement and benefit accrual. If
Continuing Employees are included in any medical, dental or health plan other
than the plan or plans they participated in as of the Effective Time, any such
plans shall not include pre-existing condition exclusions, except to the extent
such exclusions were applicable under the similar Company Benefit Plan as of the
Effective Time, and shall provide credit for any deductibles and co-payments
applied or made with respect to each Continuing Employee in the calendar year of
the change.
(b) At the Effective Time, Company's Employee Stock Purchase Plan
shall be terminated with the effect that the then current offering period under
such plan will be terminated effective as of the Effective Time.
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(c) Company shall take such action as may be required to amend its
401(k) Plan in order that after the Effective Time (i) no additional
contributions will be allocated to, nor any amounts from other investment
accounts under its 401(k) Plan transferred to, the Company Stock Fund and (ii)
participants in the Plan are permitted to direct that amounts in their Company
Stock Fund account be transferred to any other investment fund available under
the Company's 401(k) Plan subject to applicable rules with respect to the
frequency of such reallocation. As soon as practicable after the Effective Time,
the Continuing Employees shall become participants in Parent's 401(k) Plan and
the Company's 401(k) Plan shall be merged with Parent's 401(k) Plan. Until such
time, Continuing Employees shall continue to participate in the Company's 401(k)
Plan, subject to the modifications described in the preceding language of this
paragraph (c).
SECTION 5.18. Parent Board of Directors. The Board of Directors of
Parent shall take such corporate actions as are necessary to provide that,
effective at the Effective Time of the Merger, the individual set forth on
Schedule 5.18 shall become a member of the Board of Directors of Parent.
SECTION 5.19. Combined Financial Results. Parent covenants and
agrees for the benefit of the Persons specified in Schedules 3.25 and 5.11 that,
as promptly as practicable following the Effective Time, and in any event no
later than 40 days after the end of the calendar month in which the Effective
Time occurs, it will publicly release the financial results of Parent and
Company that includes a 30-day period following the Effective Time.
SECTION 5.20. Charitable Commitment. Parent agrees that for a period
of five years following the Effective Time, Parent will maintain a charitable
commitment within the State of Michigan, such commitment to take the form of and
include contributions, sponsorship of charitable events and similar activities;
provided that Parent shall not be required to expend more than $600,000 annually
in respect of such commitment. Such contributions and sponsorships shall be
under the supervision of a committee of the Parent's board of directors or any
individual designated by such committee.
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SECTION 5.21. Parent's Registration Rights. Company agrees that it
will provide Parent with registration rights with respect to shares of the
Company Common Stock, if any, that are acquired by Parent pursuant to the Option
Agreement. Such registration rights shall be substantially the same as the
registration rights provided by Parent under the Registration Rights Agreement
attached as Exhibit B hereto (treating for that purpose Company as the Issuer
and the Company Common Stock as Registrable Securities thereunder, and
construing the other provisions thereof accordingly).
ARTICLE 6
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Obligations of Each Party. The
obligations of Company, Parent and Merger Subsidiary to consummate the Merger
are subject to the satisfaction (or waiver by the party for whose benefit the
applicable condition exists) of the following conditions:
(a) this Agreement and the transactions contemplated hereby shall
have been approved and adopted by the shareholders of Company in
accordance with the Michigan Law;
(b) any applicable waiting period under the HSR Act relating to the
transactions contemplated by this Agreement shall have expired;
(c) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit or enjoin the
consummation of the Merger;
(d) there shall not be pending any suit, action or proceeding by any
Governmental Authority, (i) seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated
by this Agreement, or seeking to obtain from Parent or Company any damages
the amount of which would be reasonably likely to have a Material Adverse
Effect on Company and Parent, taken as a whole, or (ii) except to the
extent consistent with the obligations of Company and Parent under Section
5.07, seeking to prohibit or limit the ownership or operation by Company,
Parent or
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any of their respective Subsidiaries of, or to compel Parent, Company or
any of their respective Subsidiaries to dispose of or hold separate, any
material portion of the business or assets of Parent, Company or any of
their respective Subsidiaries, as a result of the Merger or any of the
other transactions contemplated by this Agreement;
(e) the Form S-4 shall have been declared effective under the 1933
Act and no stop order suspending the effectiveness of the Form S-4 shall
be in effect and no proceedings for such purpose shall be pending before
or threatened by the SEC;
(f) the shares of Parent Common Stock to be issued in the Merger
shall have been approved for listing on the NYSE, subject to official
notice of issuance; and
(g) (i) Parent shall have received a letter from KPMG Peat Marwick
LLP dated as of the Closing Date and addressed to Parent, stating that
KPMG Peat Marwick LLP believes that the acquisition of Company by Parent
should be treated as a pooling of interests in conformity with GAAP as
described in Accounting Principles Board Opinion No. 16 and applicable
rules and regulations of the SEC and such letter shall not have been
withdrawn or modified in any material respect and (ii) Company shall have
received a letter from Coopers & Lybrand LLP dated as of the Closing Date
and addressed to Company, stating that Coopers & Lybrand LLP believes that
the acquisition of Company by Parent should be treated as a pooling of
interests in conformity with GAAP as described in Accounting Principles
Board Opinion No. 16 and applicable rules and regulations of the SEC and
such letter shall not have been withdrawn or modified in any material
respect.
SECTION 6.02. Conditions to the Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or waiver by Parent) of the following
further conditions:
(a) (i) Company shall have performed in all material respects all of
its obligations and complied in all material respects with all of its
covenants
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hereunder required to be performed or complied with by it at or prior to
the Effective Time and (ii) the representations and warranties of Company
contained in this Agreement shall be true and correct in all material
respects at and as of the Effective Time, as if made at and as of such
time, except (x) for changes specifically permitted by this Agreement and
(y) those representations and warranties that address matters only as of a
particular date which are true and correct in all material respects as of
such date; and Parent shall have received a certificate signed by an
executive officer of Company to the effect set forth in clauses (i) and
(ii).
SECTION 6.03. Conditions to the Obligations of Company. The
obligations of Company to consummate the Merger are subject to the satisfaction
(or waiver by Company) of the following further conditions:
(a) (i) Parent shall have performed in all material respects all of
its obligations and complied in all material respects with all of its
covenants hereunder required to be performed or complied with by it at or
prior to the Effective Time and (ii) the representations and warranties of
Parent contained in this Agreement shall be true and correct in all
material respects at and as of the Effective Time, as if made at and as of
such time, except (x) for changes specifically permitted by this Agreement
and (y) those representations and warranties that address matters only as
of a particular date which are true and correct in all material respects
as of such date; and Company shall have received a certificate signed by
an executive officer of Parent to the effect set forth in clauses (i) and
(ii); and
(b) Company shall have received an opinion of Weil, Gotshal & Manges
LLP in form and substance reasonably satisfactory to Company, on the basis
of certain facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the
Effective Time, substantially to the effect that none of its stockholders
shall recognize gain or loss for U.S. federal income tax purposes on their
exchange of Company Common Stock solely for Parent Common Stock pursuant
to the Merger (other than in respect of any cash paid in lieu of
fractional shares). In rendering
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the opinions described in the preceding sentence, such counsel may require
and rely upon representations contained in certificates of officers and
principal stockholders of Company, Parent and their respective
Subsidiaries (the certificates substantially in the form of Exhibits D and
E).
ARTICLE 7
TERMINATION
SECTION 7.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time (notwithstanding
any approval of this Agreement by the shareholders of Company):
(a) by mutual written consent of Company and Parent;
(b) by either Company or Parent,
(i) if the Merger has not been consummated by August 31,
1998 (the "END DATE"); or
(ii) if the Company Stockholder Approval shall not have
been obtained by reason of the failure to obtain the required vote
at a duly held meeting of stockholders or any adjournment thereof;
(c) by either Company or Parent (so long as such party has complied
in all material respects with its obligations under Section 5.07), if
consummation of the Merger would violate or be prohibited by any law or
regulation or if any injunction, judgment, order or decree enjoining
Company or Parent from consummating the Merger is entered and such
injunction, judgment, order or decree shall become final and
nonappealable;
(d) by Parent, if the Board of Directors of Company shall have
failed to recommend or withdrawn, or modified or changed in a manner
adverse to Parent its approval or recommendation of this Agreement or the
Merger or shall have recommended a Superior Proposal, or Company shall
have entered into a definitive agreement in respect of an Acquisition
Proposal with a Person other than Parent or its Subsidiaries (or the
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Board of Directors of Company resolves to do any of the foregoing); and
(e) by Company, if (i) the Board of Directors of Company authorizes
Company, subject to complying with the terms of this Agreement, to enter
into a binding written agreement concerning a transaction that constitutes
a Superior Proposal and Company notifies Parent in writing that it intends
to enter into such an agreement, attaching the most current version of
such agreement to such notice, (ii) Parent does not make, within 48 hours
of receipt of the Company's written notification of its intention to enter
into a binding agreement for a Superior Proposal, an offer that the Board
of Directors of Company determines, in good faith after consultation with
its financial advisors, is at least as favorable, from a financial point
of view, to the shareholders of Company as the Superior Proposal and (iii)
Company prior to such termination pursuant to this clause (e) pays to
Parent in immediately available funds the fees required to be paid
pursuant to Section 8.04. Company agrees (x) that it will not enter into a
binding agreement referred to in clause (ii) above until at least 48 hours
after it has provided the notice to Parent required thereby and (y) to
notify Parent promptly if its intention to enter into a written agreement
referred to in its notification shall change at any time after giving such
notification.
The party desiring to terminate this Agreement pursuant to clauses
(b), (c), (d) or (e) of this Section 7.01 shall give written notice of such
termination to the other party in accordance with Section 8.01, specifying the
provision hereof pursuant to which such termination is effected. Notwithstanding
anything else contained in this Agreement, the right to terminate this Agreement
under this Section 7.01 shall not be available to any party (1) that is in
material breach of its obligations hereunder or (2) whose failure to fulfill its
obligations or to comply with its covenants under this Agreement in all material
respects has been the cause of, or resulted in, the failure to satisfy any
condition to the obligations of either party hereunder.
SECTION 7.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 7.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that (a) the agreements
contained in this Section 7.02, in Section
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5.21 and in Section 8.04 and in the Parent Confidentiality Agreement and the
Company Confidentiality Agreement shall survive the termination hereof, except
that nothing in the Company Confidentiality Agreement shall restrict the
exercise by Parent of any of its rights under this Agreement or the Option
Agreement or the transactions contemplated hereby and thereby and (b) no such
termination shall relieve any party of any liability or damages resulting from
any willful material breach by that party of this Agreement.
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given:
if to Parent, to:
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Fax: (401) 762-3012
Attention: Thomas M. Ryan, Vice Chairman and
Chief Operating Officer
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Fax: (212) 450-4800
Attention: Dennis S. Hersch, Esq.
if to Company, to:
Arbor Drugs, Inc.
3331 West Big Beaver Road
Troy, Michigan 48084
Fax: (248) 637-1634
Attention: Eugene Applebaum
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with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Fax: (212) 310-8007
Attention: Dennis J. Block, Esq.
and
Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit, Michigan 48226
Fax: (313) 962-0176
Attention: Alan S. Schwartz, Esq.
or such other address or telecopy number as such party may hereafter specify for
the purpose by notice to the other parties hereto. Each such notice, request or
other communication shall be effective (a) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified in this Section 8.01
and the appropriate telecopy confirmation is received or (b) if given by any
other means, when delivered at the address specified in this Section 8.01.
SECTION 8.02. Entire Agreement; Non-survival of Representations and
Warranties; Third Party Beneficiaries. (a) This Agreement (including any
exhibits hereto), the other agreements referred to in this Agreement and the
Parent Confidentiality Agreement and the Company Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to such
subject matter. None of this Agreement, the Parent Confidentiality Agreement,
the Company Confidentially Agreement or any other agreement contemplated hereby
or thereby (or any provision hereof or thereof) is intended to confer on any
Person other than the parties hereto or thereto any rights or remedies (except
that Article I and Sections 5.12, Section 5.17(a) and Section 5.19 are intended
to confer rights and remedies on the Persons specified therein).
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(b) The representations and warranties contained herein or in any
schedule, instrument or other writing delivered pursuant hereto shall not
survive the Effective Time.
SECTION 8.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by Company and Parent or, in the case of a waiver, by the party against whom the
waiver is to be effective; provided that after the adoption of this Agreement by
the stockholders of Company, there shall be made no amendment that by law
requires further approval by stockholders without the further approval of such
stockholders
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 8.04. Expenses. (a) Except as otherwise specified in this
Section 8.04 or agreed in writing by the parties, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring such cost or expense.
(b) If:
(x) Company shall terminate this Agreement
pursuant to Section 7.01(e);
(y) Parent shall terminate this Agreement
pursuant to Section 7.01(d), or
(z) either Company or Parent shall terminate this
Agreement pursuant to Section 7.01(b)(ii) in circumstances
where the Company Stockholder Approval has not been obtained
and (1) Company has not complied with its obligation to
recommend the Company Stockholder Approval in accordance with
Section 5.03(a) or (2) prior to the Company
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Stockholder Meeting an Acquisition Proposal is made and
Company enters into a definitive agreement in respect of an
Acquisition Proposal with any Person (other than Parent or an
Affiliate of Parent) within twelve months after termination of
this Agreement,
then in any case as described in clause (x), (y) or (z) (each such case of
termination being referred to as a "TRIGGER EVENT"), Company shall pay to Parent
(by wire transfer of immediately available funds not later than the date of
termination of this Agreement or, in the case of clause (z)(2), the date of
consummation of the Acquisition Proposal contemplated by such definitive
agreement or, if such definitive agreement contains any conditions relating to
the fee due hereunder, the date of such agreement) an amount equal to $60
million. Acceptance by Parent of the payment referred to in the foregoing
sentence shall constitute conclusive evidence that this Agreement has been
validly terminated and upon acceptance of payment of such amount Company shall
be fully released and discharged from any liability or obligation resulting from
or under this Agreement.
SECTION 8.05. Successors and Assigns. The provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties hereto and their respective successors and assigns; provided that no
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the written consent of the other
parties hereto except that Parent may assign, in its sole discretion, any or all
of its rights, interests and obligations hereunder to any direct or indirect
wholly owned Subsidiary of Parent, it being understood that no such assignment
shall relieve Parent from any of its obligations hereunder.
SECTION 8.06. Governing Law. This Agreement shall be construed in
accordance with and governed by the law of the State of Michigan (without regard
to principles of conflict of laws).
SECTION 8.07. Jurisdiction. Any suit, action or proceeding seeking
to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated by this
Agreement may be brought against any of the parties in any Federal court located
in the State of Michigan or any Michigan state
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court, and each of the parties hereto hereby consents to the exclusive
jurisdiction of such courts (and of the appropriate appellate courts therefrom)
in any such suit, action or proceeding and waives any objection to venue laid
therein. Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the State of Michigan.
Without limiting the generality of the foregoing, each party hereto agrees that
service of process upon such party at the address referred to in Section 8.01,
together with written notice of such service to such party, shall be deemed
effective service of process upon such party.
SECTION 8.08. Counterparts; Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
SECTION 8.09. Interpretation. When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of or a
Schedule to this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement they
shall be deemed to be followed by the words "without limitation." The phrases
"the date of this Agreement," "the date hereof" and terms of similar import,
unless the context otherwise requires, shall be deemed to refer to February 8,
1998.
SECTION 8.10. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. Upon such determination that any term,
provision, covenant or restriction of this Agreement is invalid, void,
unenforceable or against regulatory policy, the parties hereto shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner to
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the end that the transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 8.11. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
Federal court located in the State of Michigan or any Michigan state court, in
addition to any other remedy to which they are entitled at law or in equity.
SECTION 8.12. Joint and Several Liability. Parent and Merger
Subsidiary hereby agree that they will be jointly and severally liable for all
covenants, agreements, obligations and representations and warranties made by
either of them in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CVS CORPORATION
By: /s/ T.M. Ryan
------------------------------
Name: Thomas M. Ryan
Title: Vice Chairman and Chief
Operating Officer
ARBOR DRUGS, INC.
By: /s/ Eugene Applebaum
------------------------------
Name: Eugene Applebaum
Title: Chairman, Chief Executive
Officer and President
RED ACQUISITION, INC.
By: /s/ Charles Conaway
------------------------------
Name: Charles Conaway
Title: President
69
EXHIBIT 99
Contacts: Nancy Christal/Fred McGrail Gilbert Gerhard
CVS Corporation Arbor Drugs, Inc.
(914) 722-4704 (248) 643-9420
(401) 765-1500 x4630
Jim Fingeroth/Wendi Kopsick Fred Marx
Kekst and Company Marx Layne
(212) 521-4800 (248) 855-6777
FOR IMMEDIATE RELEASE
---------------------
CVS TO ACQUIRE ARBOR DRUGS IN $1.48 BILLION TRANSACTION,
CREATING NATION'S LARGEST CHAIN DRUG RETAILER
--UNITES LEADING NATIONAL CHAIN DRUG RETAILER
WITH PREMIER REGIONAL CHAIN--
Woonsocket, RI and Troy, MI, February 9, 1998 -- CVS Corporation (NYSE: CVS) and
Arbor Drugs, Inc. (NASDAQ: ARBR) today announced that they have signed a
definitive agreement under which CVS will acquire Arbor in a stock transaction
valued at approximately $1.48 billion.
The transaction, which joins together CVS, a leading national chain drug
retailer, with Arbor, the most highly regarded regional chain, will establish
the combined enterprise as the nation's top chain drug retailer based on store
count and prescriptions dispensed. The combined company will have 1998 revenues
exceeding $15 billion, 4,100 stores in 25 states and the District of Columbia,
and will dispense approximately 12% of all retail prescriptions in the U.S.
Under terms of the agreement, which was unanimously approved by the Boards of
Directors of both companies, CVS will acquire Arbor in an exchange of stock that
is expected to qualify as a pooling of interests transaction, to be tax-free to
Arbor shareholders, and to be accretive to CVS earnings per share, excluding
one-time charges related to the merger. The exchange ratio will be calculated by
dividing an Arbor stock price of $23 by an average closing price of CVS stock to
be determined prior to the close of the transaction. For each share of Arbor
stock they own, Arbor shareholders will receive not less than .3182 shares of
CVS common stock and not more than .3660 shares of CVS common stock.
Stanley P. Goldstein, Chairman and Chief Executive Officer of CVS, said: "Arbor
is widely regarded as the nation's best
<PAGE>
regional drugstore chain, an outstanding company with an exceptional track
record and excellent growth prospects. We couldn't be more pleased to have Arbor
join CVS. The two-way synergies between CVS and Arbor will provide terrific
opportunities to accelerate our growth and better serve our customers."
Thomas M. Ryan, CVS' Vice Chairman and Chief Operating Officer, said: "This
transaction unites two growth-oriented companies with operating philosophies and
corporate cultures that are highly compatible. CVS and Arbor share a commitment
to excellence and a clear focus on serving the customer. We operate stores of
similar size -- an important operational advantage -- and both have strong real
estate portfolios consisting of stores in convenient, well-trafficked locations.
In addition, we each have built a significant presence in the managed care
marketplace, and both companies have consistently led the chain drugstore
industry on measures of productivity and profitability.
"We welcome the opportunity to serve the people of Michigan and to bring the
outstanding Arbor organization into the CVS family. We believe there is much our
two companies can accomplish and learn from one another, to better serve our
customers, further enhance the performance of the combined enterprise, and
generate long-term growth and increased value for shareholders."
Eugene Applebaum, Chairman, President and Chief Executive Officer of Arbor,
said, "I am proud of all the Arbor organization has achieved, particularly our
customer service philosophy that has become a model by which other retailers are
measured. As I look forward, I envision that the combination of Arbor and CVS
will take our operations to new heights of success, reflecting the fact that CVS
and Arbor share a common culture, a commitment to our customers and respect for
our employees. A key part of this decision was the assurance that any company we
combined with would have the dedication to continuing the investments in
Detroit, Flint and other urban markets, in addition to financially supporting
the charities Arbor has partnered with over the years." Following the completion
of the transaction, Mr. Applebaum will join the CVS Board of Directors.
CVS noted that the transaction meets each of its stringent acquisition criteria.
First, it is accretive. The transaction is expected to contribute to earnings
per share, excluding one-time charges related to the merger, and to produce
annual cost savings of approximately $30 million. Second, the acquisition
provides CVS with leadership in new markets. Arbor has the number-one market
share in metropolitan Detroit, the nation's
2
<PAGE>
fourth-largest drug retail market. This market, in which CVS currently has no
stores, is contiguous to CVS' existing markets in the Midwest and offers
significant growth potential. Third, the combination offers considerable upside
potential, by leveraging the strengths of each organization to enhance the
performance and long-term growth of the combined entity.
As a result of the transaction, CVS plans to expand its new store program in
1998 to include the opening of 320 new and relocated stores, up from the 300
stores previously planned. Over the longer term, CVS expects to open an
additional 150-200 stores in the Michigan market.
The transaction is subject to approval by the shareholders of Arbor, expiration
of the applicable Hart-Scott-Rodino waiting period and other customary closing
conditions. It is expected that the transaction will be completed by May 1998.
CVS' financial advisor for the transaction was Credit Suisse First Boston
Corporation. Arbor was advised by Goldman Sachs & Co.
CVS, which operated 3,888 stores at the end of 1997 in 24 states and the
District of Columbia, is the leading drug store chain in the Northeast,
Mid-Atlantic, Southeast and Midwest, with 1997 net revenues of $12.7 billion.
Arbor, the nation's eighth-largest drug store chain, operates 207 locations,
predominantly in southeastern Michigan. Fiscal 1997 revenues reached $962.8
million.
This press release contains certain forward-looking statements that are subject
to risks and uncertainties. The potential risks and uncertainties that could
cause actual results to differ materially from those expressed in the
forward-looking statements are discussed in each company's SEC filings.
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