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
February 6, 1997
---------------------------------
(Date of earliest event reported)
REVCO D.S., INC.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-5025 34-1527876
--------------- ------------ ----------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Identification
organization) Number) Number)
1925 Enterprise Parkway
Twinsburg, OH 44087
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(216) 425-9811
----------------------------------------------------
(Registrant's telephone number, including area code)
Page 1 of 94
Exhibit Index is on Page 6
<PAGE>
Item 5. Other Events
Revco D.S., Inc. ("Revco") has entered into an Agreement and
Plan of Merger dated as of February 6, 1997 (the "Merger Agreement"),
with CVS Corporation ("CVS"), a Delaware corporation, and North
Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly
owned subsidiary of CVS. Pursuant to the Merger Agreement and subject
to the terms and conditions set forth therein, Merger Sub will be
merged with and into Revco (the "Merger"), and Revco will become a
direct wholly owned subsidiary of CVS. Concurrently with the execution
of the Merger Agreement, CVS entered into a Stockholder Agreement with
Zell/Chilmark Fund, L.P. ("Zell/Chilmark"), owner of approximately 19%
of the common stock of Revco, par value $0.01 per share (the "Revco
Common Stock"), pursuant to which Zell/Chilmark has agreed, among
other things, to vote all of its shares of Revco Common Stock in favor
of the Merger.
In the Merger, each issued and outstanding share of Revco
Common Stock (other than treasury shares or shares held by CVS or its
subsidiaries) will be converted into the right to receive a number
(the "Conversion Number") of shares of the common stock of CVS, par
value $0.01 per share ("CVS Common Stock"), equal to the sum of 0.4692
and a number determined by dividing (x) $20 by (y) the average
Page 2 of 94
<PAGE>
closing price per share of CVS Common Stock on the New York Stock
Exchange during ten trading days selected by lot out of the twenty
trading days ending on the fifth trading day prior to the closing date
for the Merger, provided that the Conversion Number shall not exceed
1.0097 or be less than 0.8837.
The foregoing description is qualified in its entirety by
reference to the Merger Agreement and the Stockholder Agreement,
copies of which are attached as Exhibits 2.1 and 4.1 hereto,
respectively.
On February 7, 1997, the parties issued a joint press
release announcing the execution of the Merger Agreement and certain
terms of the Merger. A copy of the joint press release, the contents
of which are incorporated herein by reference, is attached as Exhibit
99.1 hereto.
Page 3 of 94
<PAGE>
Item 7. Financial Statements and Exhibits
c. Exhibits
2.1 Agreement and Plan of Merger dated as of
February 6, 1997, among CVS Corporation,
Revco D.S., Inc. and North Acquisition
Corp. (Schedules and Exhibits omitted)
4.1 Stockholder Agreement dated as of
February 6, 1997, between CVS
Corporation and Zell/Chilmark
Fund, L.P.
99.1 Joint press release dated February 7,
1997
Page 4 of 94
<PAGE>
SIGNATURES
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.
REVCO D.S., INC.,
by /s/ Jack A. Staph
------------------------------
Jack A. Staph
Senior Vice President
Secretary and General Counsel
Date: February 7, 1997
Page 5 of 94
<PAGE>
Exhibit Index
Exhibit No. Exhibit Page No.
----------- ------- --------
2.1 Agreement and Plan of Merger 8
dated as of February 6, 1997,
among CVS Corporation, Revco
D.S., Inc. and North Acquisition
Corp. (Schedules and Exhibits
omitted)
4.1 Stockholder Agreement dated as 78
of February 6, 1997, between CVS
Corporation and Zell/Chilmark
Fund, L.P.
99.1 Joint press release dated 91
February 7, 1997
AGREEMENT AND PLAN OF MERGER
dated as of
February 6, 1997
among
CVS CORPORATION,
REVCO D.S., INC.
AND
NORTH ACQUISITION CORP.
<PAGE>
TABLE OF CONTENTS
----------------------
PAGE
----
ARTICLE 1
THE MERGER
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.................................... 5
SECTION 1.05. Fractional Shares................................ 8
SECTION 1.06. Adjustments...................................... 9
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01. Certificate of Incorporation..................... 9
SECTION 2.02. Bylaws........................................... 9
SECTION 2.03. Directors and Officers........................... 9
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF REVCO
SECTION 3.01. Organization and Power........................... 10
SECTION 3.02. Corporate Authorization.......................... 10
SECTION 3.03. Governmental Authorization....................... 11
SECTION 3.04. Non-Contravention................................ 11
SECTION 3.05. Capitalization of Revco.......................... 12
SECTION 3.06. Capitalization of Subsidiaries................... 13
SECTION 3.07. SEC Filings...................................... 14
SECTION 3.08. Financial Statements............................. 14
SECTION 3.09. Disclosure Documents............................. 14
SECTION 3.10. Information Supplied............................. 15
SECTION 3.11. Absence of Certain Changes....................... 15
SECTION 3.12. No Undisclosed Material Liabilities.............. 17
SECTION 3.13. Litigation....................................... 17
SECTION 3.14. Taxes............................................ 18
SECTION 3.15. Employee Benefit Plans; ERISA.................... 18
SECTION 3.16. Compliance with Laws; No Default; No Non-
Competes......................................... 20
SECTION 3.17. Finders' Fees.................................... 21
SECTION 3.18. Environmental Matters............................ 21
SECTION 3.19. Assets........................................... 22
SECTION 3.20. Opinion of Financial Advisor..................... 23
SECTION 3.21. Transactions with Affiliates..................... 23
SECTION 3.22. Accounting Matters............................... 23
i
<PAGE>
PAGE
----
SECTION 3.23. Insurance........................................ 23
SECTION 3.24. Takeover Statutes................................ 24
SECTION 3.25. Former Merger Agreement.......................... 24
SECTION 3.26. Pooling Letter................................... 24
SECTION 3.27. Affiliates....................................... 24
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CVS
SECTION 4.01. Organization and Power........................... 24
SECTION 4.02. Corporate Authorization.......................... 25
SECTION 4.03. Governmental Authorization....................... 25
SECTION 4.04. Non-Contravention................................ 26
SECTION 4.05. Capitalization of CVS............................ 26
SECTION 4.06. Capitalization of Subsidiaries................... 27
SECTION 4.07. SEC Filings...................................... 28
SECTION 4.08. Financial Statements............................. 28
SECTION 4.09. Disclosure Documents............................. 29
SECTION 4.10. Information Supplied............................. 29
SECTION 4.11. Absence of Certain Changes....................... 29
SECTION 4.12. No Undisclosed Material Liabilities.............. 31
SECTION 4.13. Litigation....................................... 31
SECTION 4.14. Taxes............................................ 32
SECTION 4.15. Employee Benefits, ERISA......................... 32
SECTION 4.16. Compliance with Laws; No Default; No Non-
Competes......................................... 33
SECTION 4.17. Finders' Fees.................................... 34
SECTION 4.18. Environmental Matters............................ 34
SECTION 4.19. Assets........................................... 35
SECTION 4.20. Opinion of Financial Advisor..................... 35
SECTION 4.21. Transactions with Affiliates..................... 35
SECTION 4.22. Accounting Matters............................... 36
SECTION 4.23. Insurance........................................ 36
SECTION 4.24. Takeover Statutes................................ 36
SECTION 4.25. Pooling Letter................................... 36
SECTION 4.26. Affiliates....................................... 36
ARTICLE 5
COVENANTS
SECTION 5.01. Conduct of Revco................................. 37
SECTION 5.02. Conduct of CVS................................... 39
SECTION 5.03. Stockholder Meetings; Proxy Materials; Form S-4.. 41
SECTION 5.04. Access to Information............................ 43
SECTION 5.05. Other Offers..................................... 44
ii
<PAGE>
PAGE
----
SECTION 5.06. Notices of Certain Events........................ 45
SECTION 5.07. Best Efforts..................................... 45
SECTION 5.08. Cooperation...................................... 47
SECTION 5.09. Public Announcements............................. 48
SECTION 5.10. Further Assurances............................... 48
SECTION 5.11. Affiliates; Registration Rights.................. 48
SECTION 5.12. Director and Officer Liability................... 49
SECTION 5.13. Obligations of Merger Subsidiary................. 50
SECTION 5.14. Listing of Stock................................. 50
SECTION 5.15. Antitakeover Statutes............................ 50
SECTION 5.16. Confidentiality/Standstill Agreement............. 50
SECTION 5.17. Tax and Accounting Treatment..................... 50
SECTION 5.18. Employee Benefits................................ 50
SECTION 5.19. CVS Board of Directors........................... 52
SECTION 5.20. Combined Financial Results....................... 52
SECTION 5.21. Charitable Commitment............................ 52
ARTICLE 6
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Obligations of Each Party...... 52
SECTION 6.02. Conditions to the Obligations of CVS and Merger
Subsidiary....................................... 53
SECTION 6.03. Conditions to the Obligations of Revco........... 54
ARTICLE 7
TERMINATION
SECTION 7.01. Termination...................................... 54
SECTION 7.02. Effect of Termination............................ 56
ARTICLE 8
MISCELLANEOUS
SECTION 8.01. Notices.......................................... 56
SECTION 8.02. Entire Agreement; Non-Survival of
Representations and Warranties; Third Party
Beneficiaries.................................... 58
SECTION 8.03. Amendments; No Waivers........................... 58
SECTION 8.04. Expenses......................................... 58
SECTION 8.05. Successors and Assigns........................... 59
SECTION 8.06. Governing Law.................................... 59
SECTION 8.07. Jurisdiction..................................... 59
SECTION 8.08. Counterparts; Effectiveness...................... 60
SECTION 8.09. Interpretation................................... 60
SECTION 8.10. Severability..................................... 60
iii
<PAGE>
PAGE
----
SECTION 8.11. Specific Performance............................. 60
SECTION 8.12. Joint and Several Liability...................... 61
Schedules
Exhibit A Zell/Chilmark Stockholder Agreement
Exhibit B Registration Rights Agreement
Exhibit C-1 Affiliate's Letter Relating to Pooling (Revco)
Exhibit C-2 Affiliate's Letter Relating to Pooling (CVS)
Exhibit C-3 Affiliate's Letter (Revco)
Exhibit D Form of Tax Certificate (CVS)
Exhibit E Form of Tax Certificate (Revco)
<PAGE>
TABLE OF DEFINITIONS
Term Section
- ---- -------
1933 Act Affiliates 5.11(c)
1933 Act 3.03
1934 Act 3.03
Acquisition Proposal 5.03(a)
Adjusted Option 1.04(a)
Affiliate 3.21
Antitrust Law 5.07(b)
Big B 3.05(a)
Big B Acquisition 3.05(a)
Calculated Number 1.02(a)
Closing 1.01(b)
Closing Date 1.01(b)
Code recitals
Common Shares Trust 1.05(b)
Confidentiality Agreement 5.04(a)
Continuing Employees 5.18(a)
Conversion Number 1.02(a)
CVS preamble
CVS 10-K 4.08
CVS Agreement 4.04
CVS Average Closing Price 1.02(a)
CVS Balance Sheet 4.08
CVS Balance Sheet Date 4.08
CVS Benefit Plans 4.15(a)
CVS Common Stock 1.02(a)
CVS Disclosure Documents 4.09(a)
CVS ESOP Preference Stock 4.05(a)
CVS Preferred Stock 4.05(a)
CVS Proxy Statement 4.09(a)
CVS Restructuring Program 4.11(f)
CVS Securities 4.05(a)
CVS SEC Documents 4.07(a)
CVS Stockholder Approval 5.03(b)
CVS Stockholder Meeting 5.03(b)
CVS Subsidiary Securities 4.06
Delaware Law 1.01(a)
DOJ 5.07(b)
Effective Time 1.01(c)
End Date 7.01(b)
ERISA 3.15(a)
<PAGE>
Term Section
- ---- -------
ERISA Affiliate 3.15(a)
EVA Plan 5.18(b)
Exchange Agent 1.03(a)
Existing Company/Stockholder Agreements 3.05(b)
Fixed Number 1.02(a)
Form S-4 4.09
FTC 5.07(c)
GAAP recitals
Governmental Authority 3.03
HSR Act 3.03
Indemnified Party 5.12
IS Projects 5.01(k)
Lien 3.04
LTIP 1.04(a)
Material Adverse Effect 3.01
Merger 1.01(a)
Merger Consideration 1.02(c)
Merger Subsidiary preamble
NEDP 1.04(a)
Notice of Superior Proposal 5.03(a)
NYSE 1.02(a)
Permitted CVS Transactions 5.02
Person 1.02(d)
qualified stock options 1.04(a)
Random Trading Days 1.02(a)
Revco preamble
Revco 10-K 3.08
Revco Agreement 3.04
Revco Balance Sheet 3.08
Revco Balance Sheet Date 3.08
Revco Benefit Plans 3.15(a)
Revco Common Stock 1.02(a)
Revco Option Plans 1.04(a)
Revco Preferred Stock 3.05(a)
Revco Proxy Statement 3.09
Revco Securities 3.05(a)
Revco SEC Documents 3.07(a)
Revco Stockholder Approval 5.03(a)
Revco Stockholder Meeting 5.03(a)
Revco Stock Option 1.04(a)
Revco Subsidiary Securities 3.06
SEC 3.07(a)
2
<PAGE>
Term Section
- ---- -------
Service 3.14(c)
Settlement 5.07(d)
Share 1.02(a)
Significant Subsidiary 3.01
Subsidiary 1.02(d)
Superior Proposal 5.03(a)
Surviving Corporation 1.01(a)
Takeover Statute 3.24
Tax Return 3.14(d)
Taxes 3.14(d)
Taxing Authority 3.14(d)
Threshold Settlement 5.07(d)
Trigger Event 8.04(b)
Zell/Chilmark recitals
Zell/Chilmark Stockholder Agreement recitals
3
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 6, 1997
among CVS Corporation, a Delaware corporation ("CVS"), Revco D.S.,
Inc., a Delaware corporation ("Revco"), and North Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of CVS ("Merger
Subsidiary").
WHEREAS, the respective Boards of Directors of CVS and Revco
have approved, and deem it advisable and in the best interests of
their respective stockholders to consummate, the acquisition of Revco
by CVS 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, and the rules and regulations
promulgated thereunder (the "Code");
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 CVS entering into
this Agreement and incurring the obligations set forth herein,
concurrently with the execution and delivery of this Agreement, CVS is
entering into a Stockholder Agreement with Zell/Chilmark Fund, L.P.
("Zell/Chilmark") in the form of Exhibit A hereto (the "Zell/Chilmark
Stockholder Agreement") pursuant to which, among other things, such
stockholder has agreed to vote the shares of Revco Common Stock owned
by such 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 and in the Zell/Chilmark Stockholder Agreement, the
parties hereto agree as follows:
<PAGE>
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,
Merger Subsidiary shall be merged (the "Merger") with and into Revco
in accordance with the Delaware General Corporation Law (the "Delaware
Law"), whereupon the separate existence of Merger Subsidiary shall
cease, and Revco 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 to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after
satisfaction of the conditions set forth in Article 6, 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, Revco and Merger Subsidiary will file
a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by Delaware
Law in connection with the Merger. The Merger shall become effective
at such time as the certificate of merger is duly filed with the
Secretary of State of the State of Delaware or at such later time as
is agreed by CVS and Revco and specified in the certificate of merger
(the "Effective Time").
(d) The Merger shall have the effects set forth in Section
259 of the Delaware 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 Revco (the "Revco Common Stock") held by Revco as
treasury stock or owned by CVS or any Subsidiary of CVS
immediately prior to the Effective Time shall be cancelled,
and no CVS Common Stock or other consideration shall be
delivered in exchange therefor;
(ii) each share of common stock, par value $0.01 per
share, of Merger Subsidiary 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
<PAGE
(iii) each share (each, a "Share" and collectively, the
"Shares") of Revco 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 (the
"CVS Common Stock"), of CVS equal to the sum of:
(x) 0.4692 (the "Fixed Number"); and
(y) that number (the "Calculated Number") (rounded
to the nearest ten-thousandth) determined by dividing
$20 by the CVS Average Closing Price; provided that the
Calculated Number shall not exceed 0.5405 and shall not
be less than 0.4145.
For purposes of this Agreement, "CVS Average Closing Price"
means the average closing price per share of the CVS 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 Closing Date. The Random Trading Days shall be selected
by lot by CVS and Revco at 5:00 p.m. New York time on the
fifth trading day prior to the Closing Date. The sum of the
Fixed Number and the Calculated Number is referred to herein
as the "Conversion Number".
(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 and any dividends payable pursuant
to Section 1.03(f). From and after the Effective Time, all
certificates representing the common stock of Merger Subsidiary shall
be deemed for all purposes to represent the number of shares of Common
Stock of the Surviving Corporation into which they were converted in
accordance with Section 1.02(a)(ii).
(c) The CVS 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 CVS Common Stock) 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 at least a majority of the
securities or other interests having by their terms ordinary voting
power to elect at least a majority of the
<PAGE>
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.
SECTION 1.03. Surrender and Payment. (a) Prior to the
Effective Time, CVS shall appoint an agent reasonably acceptable to
Revco (the "Exchange Agent") for the purpose of exchanging
certificates representing Shares for the Merger Consideration.
Immediately following the Effective Time, CVS shall deposit with the
Exchange Agent, for the benefit of the holders of shares of Revco
Common Stock, certificates representing the CVS Common Stock issuable
pursuant to Section 1.02 in exchange for outstanding shares of Revco
Common Stock. Promptly after the Effective Time, CVS 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 CVS Common Stock and Revco 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 CVS Common Stock.
(b) Each holder of Shares that have been converted into a
right to receive the Merger Consideration, upon surrender to the
Exchange Agent of a certificate or certificates representing such
Shares, together with a properly completed letter of transmittal
covering such Shares, will be entitled to receive the Merger
Consideration payable in respect of such Shares and any dividends
payable pursuant to Section 1.03(f). Until so surrendered, each such
certificate shall, after the Effective Time, represent for all
purposes only the right to receive the Merger Consideration and any
dividends payable pursuant to Section 1.03(f).
(c) If any portion of the Merger Consideration is to be paid
to a Person other than the registered holder of the Shares represented
by the certificate or certificates surrendered in exchange therefor,
it shall be a condition to such payment that the certificate or
certificates so surrendered shall be properly endorsed or otherwise be
in proper form for transfer and that the Person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of shares of CVS Common Stock 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.
<PAGE>
(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 cancelled 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 CVS, 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 CVS
for payment of the Merger Consideration and any dividends payable
pursuant to Section 1.03(f) in respect of his Shares. Notwithstanding
the foregoing, CVS shall not be liable to any holder of Shares for any
amount paid to a public official pursuant to applicable abandoned
property laws. Any amounts remaining unclaimed by holders of Shares
seven years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent
permitted by applicable law, become the property of CVS free and clear
of any claims or interest of any Person previously entitled thereto.
(f) No dividends or other distributions with respect to CVS
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 CVS 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 CVS 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, CVS and Revco (or, if
appropriate, any committee of the Board of Directors of Revco
administering the Revco 1992 Long-Term Incentive Compensation Plan, as
amended (the "LTIP"), the Revco 1992 Non-Employee Directors' Stock
Option Plan, as amended (the "NEDP") and the Revco 1993 Employee Stock
Purchase Plan (collectively, the "Revco Option Plans") shall take such
action as may be required to effect the following:
<PAGE>
(i) the terms of each outstanding option granted by
Revco to purchase shares of Revco Common Stock under the
Revco Option Plans (a "Revco Stock Option"), whether vested
or unvested, shall be adjusted as necessary to provide that
at the Effective Time, each Revco Stock Option outstanding
immediately prior to the Effective Time shall be deemed to
constitute an immediately exercisable (without regard to any
vesting limitations under the Revco Option Plans) option to
acquire, on the same terms and conditions as were applicable
under such Revco Stock Option, the same number of shares of
CVS Common Stock as the holder of such Revco Stock Option
would have been entitled to receive pursuant to the Merger
had such holder exercised such Revco Stock Option in full
immediately prior to the Effective Time, at a price per
share of CVS Common Stock equal to (A) the aggregate
exercise price for the shares of Revco Common Stock
otherwise purchasable pursuant to such Revco Stock Option
divided by (B) the aggregate number of shares of CVS Common
Stock deemed purchasable pursuant to such Revco Stock Option
(each, as so adjusted, an "Adjusted Option"); provided that
(after aggregating all the Shares of a holder subject to
Revco Stock Options) any fractional share of CVS 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 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 option shall be determined in
order to comply with Section 424 of the Code;
(ii) either the Board of Directors (or a committee
thereof with the requisite authority) of each of Revco and
CVS will agree, or the terms of the LTIP and each
outstanding Revco Stock Option under the LTIP shall be
modified, to eliminate the discretion of such Board of
Directors to terminate any Revco Stock Option granted
thereunder 90 days following a Change in Control (as defined
under the LTIP);
(iii) each holder of a Revco Stock Option shall have
the right to elect to exercise his or her Revco Stock
Option, as modified pursuant to clause (i) above, under the
"Cashless Exercise Program" adopted by the Human Resources
Committee of the Board of Directors of Revco on January 24,
1996, and neither the Board of Directors of Revco nor any
committee thereof prior to the Effective Time, nor CVS, its
Board of Directors, the Surviving Corporation or its Board
of Directors, at or after the Effective Time, shall take any
action that would have the effect of rendering such Cashless
Exercise Program inapplicable to such Revco
<PAGE>
Stock Options so long as such Revco Stock Options or
Adjusted Options are outstanding and exercisable in
accordance with their terms. CVS shall ensure that, for a
period of at least one year following the Effective Time,
the Surviving Corporation shall have such procedures in
place as are necessary to effect the exercise of any
Adjusted Option pursuant to such Cashless Exercise Program
so long as such Adjusted Option is outstanding and
exercisable in accordance with its terms; and
(iv) Revco has delivered to CVS letters from each of
the officers named on Annex A to Schedule 3.15 waiving such
officer's right to receive from Revco and CVS, in the event
of such officer's termination following the Merger, a cash
payment in settlement of such officer's outstanding options
under the LTIP.
(b) As soon as practicable after the Effective Time, CVS
shall deliver to the holders of Revco Stock Options appropriate
notices setting forth such holders' rights pursuant to the respective
Revco Option Plans and the agreements evidencing the grants of such
Revco Stock Options and that such Revco Stock Options and agreements
shall be assumed by CVS 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). CVS shall comply with the
terms of the Revco Option Plans and ensure, to the extent required by,
and subject to the provisions of, such Revco Option Plans, that the
Revco Stock Options which qualified as qualified stock options prior
to the Effective Time continue to qualify as qualified stock options
after the Effective Time.
(c) CVS shall take such actions as are reasonably necessary
for the assumption of the Revco Option Plans pursuant to this Section
1.04, including the reservation, issuance and listing of CVS Common
Stock as is necessary to effectuate the transactions contemplated by
this Section 1.04. CVS shall prepare and file with the SEC a
registration statement on Form S-8 or other appropriate form with
respect to shares of CVS Common Stock subject to Revco Stock Options
issued under such Revco Option Plans and shall use its reasonable best
efforts to have such registration statement declared effective
immediately following the Effective Time and to maintain the
effectiveness of such registration statement or registration
statements covering such Revco Stock Options (and maintain the current
status of the prospectus or prospectuses contained therein) for so
long as such Revco 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, where applicable, CVS shall use all reasonable efforts to
administer the Revco 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 Revco Option Plan complied with
such rule prior to the Merger.
<PAGE>
SECTION 1.05. Fractional Shares. (a) No fractional shares of
CVS Common Stock shall be issued in the Merger, but in lieu thereof
each holder of Shares otherwise entitled to a fractional share of CVS
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 CVS 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 (i) the
number of shares of CVS Common Stock delivered to the Exchange Agent
by CVS pursuant to Section 1.03(a) over (ii) the aggregate number of
whole shares of CVS 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"). 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 all 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.
Until the net proceeds of such sale or sales have been distributed to
such holders of Shares, the Exchange Agent will hold such proceeds in
trust for such holders. The proceeds from such sale or sales available
for distribution to the holders of Shares shall be reduced by the
compensation payable to the Exchange Agent and the expenses incurred
by the Exchange Agent, in each case, in connection with such sale or
sales of the Excess Shares, including all related commissions,
transfer taxes and other out-of-pocket transaction costs. Until the
net proceeds of such sale or sales have been distributed to the
holders of Shares, the Exchange Agent shall hold such net proceeds in
trust for the holders of Shares (the "Common Shares Trust"). The
Exchange Agent shall determine the portion of the Common Shares Trust
to which each holder of Shares shall be entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the
Common Shares Trust by a fraction, the numerator of which is the
amount of the fractional share interest to which such holder of Shares
would otherwise be entitled and the denominator of which is the
aggregate amount of fractional share interests to which all holders of
Shares would otherwise be entitled.
(c) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Shares in lieu of any
fractional shares of CVS Common Stock, the Exchange Agent shall make
available such amounts to such holders of Shares without interest.
<PAGE>
SECTION 1.06. Adjustments. In the event of any split,
combination or reclassification of the outstanding CVS Common Stock or
any issuance of any other securities in exchange or in substitution
for outstanding shares of CVS Common Stock at any time during the
period from the date of this Agreement to the Effective Time, Revco
and CVS shall make such adjustment to the Conversion Number as Revco
and CVS shall mutually agree so as to preserve the economic benefits
that Revco and CVS 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. Certificate of Incorporation. The certificate
of incorporation of Revco shall be the certificate of incorporation of
the Surviving Corporation, except that, at the Effective Time, the
name of the Surviving Corporation shall be changed to "CVS Revco D.S.,
Inc." and certain other amendments thereto shall be effected in the
certificate of merger filed pursuant to Section 1.01(c).
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 Delaware Law and the certificate 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 REVCO
Revco represents and warrants to CVS that:
SECTION 3.01. Organization and Power. Each of Revco 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
<PAGE>
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
Revco. Each of Revco 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 Revco. For purposes of
this Agreement, a "Material Adverse Effect" with respect to any
Person means a material adverse effect (i) on the condition (financial
or otherwise), business, liabilities, properties, assets, or results
of operations of such Person and its Subsidiaries, taken as a whole,
or (ii) on the ability of such Person to perform its obligations under
or to consummate the transactions contemplated by this Agreement.
Schedule 3.01 sets forth a complete list of Revco'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"). Revco has heretofore delivered to CVS true and complete
copies of Revco's certificate of incorporation and bylaws as currently
in effect.
SECTION 3.02. Corporate Authorization. (a) The execution,
delivery and performance by Revco of this Agreement and the
consummation by Revco of the transactions contemplated hereby are
within Revco's corporate powers and, except as set forth in the next
succeeding sentence of this Section 3.02(a), 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
Revco'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 Revco and, subject to the
receipt of the approval described in the immediately preceding
sentence, constitutes a valid and binding agreement of Revco,
enforceable against Revco 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, including concepts of materiality, reasonableness, good faith
and fair dealing, regardless of whether in a proceeding at equity or
at law).
(b) The Board of Directors of Revco has duly and validly
approved this Agreement and the transactions contemplated by this
Agreement (including the termination of the Existing
Company/Stockholder Agreements as of the Effective Time), including
all actions necessary to render the provisions of Section 203 of the
Delaware Law inapplicable to the Merger.
<PAGE>
SECTION 3.03. Governmental Authorization. The execution,
delivery and performance by Revco of this Agreement, and the
consummation by Revco 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 Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which Revco
is qualified to do business; (b) compliance with any applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (c) compliance with any applicable
requirements of the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "1933 Act"); (d)
compliance with any applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "1934 Act"); (e) compliance with any other applicable
securities laws; (f) those that may be required solely by reason of
CVS' 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 boards and alcoholic beverage
commissions or comparable entities in the states in which Revco and
its Subsidiaries do business; (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 Revco; 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 Revco of
this Agreement do not, and the consummation by Revco 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 certificate of incorporation, bylaws or similar
organizational documents of Revco 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 Revco or any Subsidiary of Revco,
(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 Revco or any Subsidiary of Revco or to a loss of any benefit to
which Revco or any Subsidiary of Revco is entitled under any provision
of any agreement, contract or other instrument binding upon Revco or
any Subsidiary of Revco and which either has a term of more than one
year or involves the payment or receipt of money in excess of $500,000
(a "Revco Agreement") or any license, franchise, permit or other
similar authorization held by Revco or any Subsidiary of Revco, or (d)
result in the
<PAGE>
creation or imposition of any Lien on any asset of Revco or any
Subsidiary of Revco, 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 Revco. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset.
SECTION 3.05. Capitalization of Revco. (a) The authorized
capital stock of Revco consists of 100,000,000 shares of Revco Common
Stock and 25,000,000 shares of preferred stock, par value $0.01 per
share (the "Revco Preferred Stock"). As of the close of business on
January 31, 1997, (i) 68,791,308 shares of Revco Common Stock are
issued and outstanding, 1,202,000 shares of Revco Common Stock are
held in Revco's treasury, 903,451 shares of Revco Common Stock are
reserved for issuance under Revco's 401(k) Savings Plan, 524,536
shares of Revco Common Stock are reserved for issuance under Revco's
1993 Employee Stock Purchase Plan and 4,407,728 shares of Revco Common
Stock are reserved for issuance pursuant to options previously granted
pursuant to the Revco Stock Option Plans, (ii) no shares of Revco
Preferred Stock are issued and outstanding and (iii) no shares of
Revco Preferred Stock are issued and held in the treasury of Revco.
All the outstanding shares of Revco's capital stock are, and all
shares which may be issued pursuant to the Revco Stock 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, 1997 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 Revco, (y) no
securities of Revco convertible into or exchangeable for shares of
capital stock or voting securities of Revco, and (z) no options,
warrants or other rights to acquire from Revco, 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 Revco, obligating Revco to issue, transfer or
sell, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of Revco
or obligating Revco 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 "Revco Securities"). Other than shares
of Big B, Inc. ("Big B") to be acquired upon surrender by the holders
thereof in connection with the merger of RDS Acquisition Co., a wholly
owned Subsidiary of Revco, into Big B as part of Revco's acquisition
of Big B (collectively, the "Big B Acquisition"),
<PAGE>
none of Revco or its Subsidiaries has any contractual obligation to
redeem, repurchase or otherwise acquire any Revco Securities or any
Revco Subsidiary Securities, including as a result of the transactions
contemplated by this Agreement. Except as permitted by this Agreement,
following the Merger, neither Revco 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) Except for the Existing Company/Stockholder Agreement
with Zell/Chilmark, there are no voting trusts or other agreements or
understandings to which Revco or any Subsidiary of Revco is a party
with respect to the voting of the capital stock of Revco or any
Subsidiary of Revco. Within five business days of the date of this
Agreement, Revco will enter into letter agreements, copies of which
shall be delivered promptly to CVS, pursuant to which as of the
Effective Time the Stockholder Agreement between Zell/Chilmark and
Revco dated as of June 1, 1992, the Registration Rights Agreement
between Zell/Chilmark and Revco dated as of June 1, 1992 and the
Registration Rights Agreement between Magten Asset Management
Corporation and Revco dated as of January 20, 1993 (such agreements
being referred to herein as the "Existing Company/Stockholder
Agreements") shall be terminated.
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 Revco, is
owned by Revco, directly or indirectly, free and clear of any
consensual 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 Revco or any
Subsidiary of Revco convertible into or exchangeable for shares of
capital stock or other voting securities or ownership interests in any
Subsidiary of Revco, or (ii) options or other rights to acquire from
Revco or any Subsidiary of Revco, and no other obligation of Revco or
any Subsidiary of Revco 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 Revco (the items in clauses (i) and
(ii) being referred to collectively as the "Revco Subsidiary
Securities").
SECTION 3.07. SEC Filings. (a) Revco has filed all required
reports, schedules, forms, statements and other documents with the
Securities and Exchange Commission (the "SEC") since May 31, 1995 (the
"Revco SEC Documents").
(b) As of its filing date, each Revco 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
<PAGE>
the circumstances under which they were made, not misleading, except
to the extent that such statements have been modified or superseded by
a later filed Revco SEC Document.
(c) Each Revco 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 Revco SEC Document.
SECTION 3.08. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial
statements of Revco included in Revco's Annual Report on Form 10-K for
the fiscal year ended June 1, 1996 (the "Revco 10-K") and its
Quarterly Report on Form 10-Q for the fiscal quarter ended November
16, 1996 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 Revco 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, "Revco Balance
Sheet" means the consolidated balance sheet of Revco as of June 1,
1996 set forth in the Revco 10-K and "Revco Balance Sheet Date" means
June 1, 1996.
SECTION 3.09. Disclosure Documents. Neither the proxy
statement of Revco (the "Revco 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 stockholders of Revco or 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. The Revco Proxy Statement
will, when filed, comply as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations promulgated
thereunder. No representation or warranty is made by Revco in this
Section 3.09 with respect to statements made or incorporated by
reference therein based on information supplied by CVS or Merger
Subsidiary for inclusion or incorporation by reference in the Revco
Proxy Statement.
<PAGE>
SECTION 3.10. Information Supplied. None of the information
supplied or to be supplied by Revco for inclusion or incorporation by
reference in (i) the CVS Proxy Statement or any amendment or
supplement thereto will, at the date the CVS Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of CVS
and at the time such stockholders vote on the issuance of shares of
CVS Common Stock in connection with the Merger, 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 or (ii) the
Form S-4 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 Revco SEC Documents filed prior to the date of this
Agreement or as disclosed in Schedule 3.11, since November 16, 1996,
Revco 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 Revco, except for general economic changes,
changes that affect the industry of Revco or any of its Subsidiaries
generally, and changes in Revco's business after the date hereof
attributable solely to actions taken by CVS;
(b) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital
stock of Revco, or any repurchase, redemption or other acquisition by
Revco or any Subsidiary of Revco of any amount of outstanding shares
of capital stock or other equity securities of, or other ownership
interests in, Revco or any Subsidiary of Revco;
(c) any amendment of any term of any outstanding security of
Revco or any Subsidiary of Revco that would materially increase the
obligations of Revco or such Subsidiary under such security;
(d) other than in connection with any indebtedness for
borrowed money of Big B and its Subsidiaries assumed as a result of
the Big B Acquisition, (x) any incurrence or assumption by Revco or
any Subsidiary of Revco 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 shall be
considered to have been in the
<PAGE>
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 Revco or
any Subsidiary of Revco for the obligations of any other Person (other
than any wholly owned Subsidiary of Revco), other than in the ordinary
course of business consistent with past practice;
(e) any creation or assumption by Revco or any Subsidiary of
Revco of any consensual Lien on any material asset of Revco or any
Subsidiary of Revco other than in the ordinary course of business
consistent with past practices and any consensual Liens assumed as a
result of the Big B Acquisition;
(f) any making of any loan, advance or capital contribution
to or investment in any Person by Revco or any Subsidiary of Revco
other than (i) any acquisition permitted by Section 5.01, (ii) loans,
advances or capital contributions to or investments in wholly-owned
Subsidiaries of Revco or (iii) loans or advances to employees of Revco
or any Subsidiary of Revco made in the ordinary course of business
consistent with past practices;
(g) (i) any contract or agreement entered into by Revco or
any Subsidiary of Revco 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 Revco or any Subsidiary of Revco 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 Revco, 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 Revco or any Subsidiary of Revco,
except for any such change required by reason of a change in GAAP; or
(i) except for items permitted by Section 5.18, any (i)
grant of any severance or termination pay to any director, officer or
employee of Revco 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 Revco 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 Revco 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 (other than
officers)
<PAGE>
of Revco or any of its Subsidiaries in the ordinary course of business
consistent with past practice or merit increases in salaries of
employees (other than officers) 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 Revco or any
Subsidiary of Revco since November 16, 1996, whether accrued,
contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities or obligations disclosed or provided for in
the Revco Balance Sheet or in the notes thereto or in the Revco SEC
Documents filed prior to the date hereof;
(b) liabilities or obligations which, individually and in
the aggregate, have not had and are not reasonably likely to have a
Material Adverse Effect on Revco; 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 Revco
SEC Documents filed prior to the date hereof, there is no action,
suit, investigation or proceeding pending against, or to the knowledge
of Revco, threatened against or affecting, Revco or any Subsidiary of
Revco 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 Revco.
SECTION 3.14. Taxes. (a) Revco and each of its Subsidiaries
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, complete in all material respects;
(b) Revco and each of its Subsidiaries has paid (or has had
paid on its behalf) or, where payment is not yet due, has established
in accordance with GAAP (or has had established on its behalf and for
its sole benefit and recourse) or will establish or cause to be
established on or before the Effective Time an adequate accrual for
the payment of, all material Taxes due with respect to any period
ending prior to or as of the Effective Time; and
(c) the federal income Tax Returns of (w) Hook-SupeRx, Inc.
and its Subsidiaries, (x) Big B and its Subsidiaries and (y) Revco and
its Subsidiaries (other than those specified in (w) and (x)) have been
examined and settled with the
<PAGE>
Internal Revenue Service (the "Service") (or the applicable statutes
of limitation for the assessment of federal income Taxes for such
periods have expired) through the respective fiscal years ending in
1991, 1993 and 1991.
(d) "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,
withholding, franchise, transfer and recording taxes, fees and
charges, and any other taxes, assessment or similar charges imposed by
the Service or any 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 attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other
assessments. "Tax Return" shall mean any report, return, document,
declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes, including information returns, any documents with
respect to or accompanying payments of estimated Taxes, or with
respect to or accompanying requests for the extension of time in which
to file any such report, return, document, declaration or other
information.
SECTION 3.15. Employee Benefit Plans; ERISA. (a) Except as
set forth in Schedule 3.15(a), there are no material employee benefit
plans (including any plans for the benefit of directors or former
directors), arrangements, practices, contracts or agreements
(including employment agreements and severance agreements, incentive
compensation, bonus, stock option, stock appreciation rights and stock
purchase plans) of any type (including plans described in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), maintained by Revco, any of its Subsidiaries or any trade
or business, whether or not incorporated (an "ERISA Affiliate"), that
together with Revco would be deemed a "controlled group" within the
meaning of Section 4001(a)(14) of ERISA, or with respect to which
Revco or any of its Subsidiaries has or may have a liability (the
"Revco Benefit Plans"). Except as disclosed in Schedule 3.15(a) (or as
otherwise permitted by this Agreement): (1) neither Revco nor any
ERISA Affiliate has any formal plan or commitment, whether legally
binding or not, to create any additional Revco Benefit Plan or modify
or change any existing Revco Benefit Plan that would affect any
employee or terminated employee of Revco or any ERISA Affiliate; and
(2) since November 16, 1996, there has been no change, amendment,
modification to, or adoption of, any Revco Benefit Plan, in each case,
<PAGE>
that has had, or would be reasonably likely to have, a Material
Adverse Effect on Revco.
(b) With respect to each Revco 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 Revco: (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 Revco 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): (i) neither
Revco nor any ERISA Affiliate has incurred any liability under Title
IV of ERISA (including Sections 4063-4064 and 4069 of ERISA) since the
effective date 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 Revco.
(e) With respect to each Revco 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 Revco or any of its Subsidiaries beyond their termination of
employment, other than on an employee-pay-all basis, except as would
not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on Revco.
(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 (i) 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 Revco Benefit Plan, or (ii) constitute or result in a
prohibited transaction under Section 4975 of the Code or Section 406
or 407 of ERISA with respect to any Revco Benefit Plan.
<PAGE>
(g) Except as disclosed in Schedule 3.15(a), there is no
Revco 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 Revco or any of its Significant Subsidiaries is a
party and copies of each such agreement have been furnished to or made
available to CVS. 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 Revco, (i) there is no labor
strike, slowdown or work stoppage or lockout against Revco 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 Revco, no question concerning
representation exists with respect to the employees of Revco or any of
its Significant Subsidiaries.
SECTION 3.16. Compliance with Laws; No Default; No
Non-Competes. (a) Neither Revco nor any of its Subsidiaries is in
violation of or has violated or 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 Revco.
(b) Each Revco Agreement is a valid, binding and enforceable
obligation of Revco 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 Revco. None of Revco 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) except as disclosed in Schedule 3.16,
any Revco Agreement, except, in the case of clause (i) (with respect
to organizational documents that are partnership, joint venture or
similar documents) and (ii), 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 Revco. Revco
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 Revco. Except
as disclosed in Schedule 3.16, neither Revco nor any Subsidiary of
Revco is a party to any agreement that expressly limits the ability of
Revco or any Subsidiary of Revco to compete in or conduct any line of
business or compete with any Person
<PAGE>
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 CVS after giving effect to the Merger.
SECTION 3.17. Finders' Fees. Except for Wasserstein, Perella
& Co., Inc. and Salomon Brothers Inc, a copy of each of whose
engagement agreement has been provided to CVS, no investment banker,
broker, finder, other intermediary or other Person is entitled to any
fee or commission from Revco or any Subsidiary of Revco upon
consummation of the transactions contemplated by this Agreement.
SECTION 3.18. Environmental Matters. (a) Except as set forth
in the Revco 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
Revco or any Subsidiary of Revco, is threatened by any
Person against, Revco or any Subsidiary of Revco 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 Revco;
(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 Revco, previously owned, leased or
operated by Revco or any Subsidiary of Revco, which
circumstance, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on
Revco; 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
Revco.
(b) For purposes of this Section, the following terms shall
have the meanings set forth below:
(i) "Revco" and "Subsidiary of Revco" shall include any
entity which is, in whole or in part, a predecessor of Revco
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
<PAGE>
governmental restrictions or any agreement with any
governmental authority or other third party, relating to
human health and safety, the environment or to pollutants,
contaminants, wastes or chemicals or toxic, radioactive,
ignitable, corrosive, reactive or otherwise hazardous
substances, wastes or materials;
(iii) "Environmental Liabilities" means any and all
liabilities of or relating to Revco or any Subsidiary of
Revco of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, which (A)
arise under or relate to matters covered by Environmental
Laws and (B) arise from actions occurring or conditions
existing on or prior to the Effective Time; and
(iv) "Hazardous Substances" means any pollutant,
contaminant, waste or chemical or any toxic, radioactive,
corrosive, reactive or otherwise hazardous substance, waste
or material, or any substance having any constituent
elements displaying any of the foregoing characteristics,
including, without limitation, 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
Revco and its Subsidiaries, taken as a whole, are sufficient to permit
Revco 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 Revco. All material real property
owned by Revco 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 Revco included in the Revco 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 assumed as a result of the Big B Acquisition and
(D) Liens that do not materially adversely interfere with any present
use of such property.
SECTION 3.20. Opinion of Financial Advisor. Revco has
received the written opinion of each of Wasserstein, Perella & Co.,
Inc. and Salomon Brothers Inc. to the effect that, as of the date
hereof, the Conversion Number to be received by the holders of Shares
in connection with the Merger is fair to such holders from a financial
point of view. Revco has delivered to CVS and Merger Subsidiary a copy
of each such opinion.
SECTION 3.21. Transactions with Affiliates. Except to the
extent disclosed in the Revco SEC Documents filed prior to the date of
this Agreement, from June 1, 1996 through the date of this Agreement,
there have been no
<PAGE>
transactions, agreements, arrangements or understandings between Revco
or its Subsidiaries, on the one hand, and Revco's Affiliates (other
than wholly-owned Subsidiaries of Revco) 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. Accounting Matters. Neither Revco nor, to its
best knowledge, any of its Subsidiaries has taken or agreed to take
any action that would prevent CVS from accounting for the business
combination to be effected by the Merger as a "pooling of interests".
SECTION 3.23. Insurance. Except as set forth on Schedule
3.23, Revco and each of its Significant Subsidiaries are insured by
insurers, reasonably believed by Revco to be of recognized financial
responsibility and solvency, against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged.
Revco's unsettled workers compensation and general liability claims
would not, individually or in the aggregate, be reasonably likely to
have a Material Adverse Effect on Revco.
SECTION 3.24. Takeover Statutes. The Board of Directors of
Revco has approved the Merger and this Agreement, and such approval is
sufficient to render inapplicable to the Merger, this Agreement, and
the transactions contemplated by this Agreement and the Zell/Chilmark
Stockholder Agreement the provisions of Section 203 of the Delaware
Law. To the best of Revco's knowledge, 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 Revco
or any of its Subsidiaries is applicable to the Merger or the other
transactions contemplated hereby.
SECTION 3.25. Former Merger Agreement. The Agreement and
Plan of Merger dated as of November 29, 1995 among Rite Aid
Corporation, Ocean Acquisition Corporation and Revco has been
terminated in accordance with its terms, and Revco has no liabilities
or obligations, contingent or otherwise, under or arising out of such
agreement or the transactions contemplated thereby, except for
obligations under the confidentiality provisions of such agreement.
SECTION 3.26. Pooling Letter. Revco has received a letter
from Arthur Andersen, LLP dated as of the date of this Agreement and
addressed to Revco, a copy of which has been delivered to CVS, stating
that Arthur Andersen, LLP
<PAGE>
believes that the acquisition of Revco by CVS should be treated as a
pooling of interests in conformity with generally accepted accounting
principles, as described in Accounting Principles Board Opinion No.
16.
SECTION 3.27. Affiliates. Schedule 3.27 sets forth each
Person who, as of the date hereof, is, to the best of Revco's
knowledge, deemed to be an Affiliate of Revco.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF CVS
CVS represents and warrants to Revco that:
SECTION 4.01. Organization and Power. Each of CVS and its
Subsidiaries is a corporation, partnership or other entity duly
organized, validly existing and is in good standing under the laws of
the jurisdiction of its incorporation or organization, and has the
requisite corporate or other power and authority and governmental
approvals to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on CVS. Each of CVS 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
CVS. Schedule 4.01 sets forth a complete list of CVS' Significant
Subsidiaries. CVS has delivered to Revco true and complete copies of
CVS' and Merger Subsidiary's certificate of incorporation and bylaws
as currently in effect.
SECTION 4.02. Corporate Authorization. The execution,
delivery and performance by CVS and Merger Subsidiary of this
Agreement and the consummation by CVS and Merger Subsidiary of the
transactions contemplated hereby, including entering into the
Zell-Chilmark Stockholder Agreement, are within the corporate powers
of CVS and Merger Subsidiary and, except for any required approval by
the stockholders of CVS of the issuance of shares of CVS Common Stock
in connection with the Merger, have been duly authorized by all
necessary corporate action, including by resolution of the Board of
Directors of CVS. The affirmative vote, in favor of the issuance of
shares of CVS Common Stock in connection with the Merger (including
any shares contemplated by
<PAGE>
Section 1.04), of a majority of the votes represented by the shares of
CVS Common Stock and CVS ESOP Preference Stock, voting as a single
class, present at the CVS Stockholder Meeting in person or by proxy
and entitled to vote (so long as a majority of the votes represented
by the total outstanding shares of CVS Common Stock and CVS ESOP
Preference Stock is cast at such meeting), is the only vote of any
class or series of CVS' capital stock necessary in connection with
this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of CVS and
Merger Subsidiary and constitutes a valid and binding agreement of
each of CVS and Merger Subsidiary, enforceable against CVS 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, including concepts of materiality, reasonableness, good faith
and fair dealing, regardless of whether in a proceeding at equity or
at law). The shares of CVS 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 CVS and Merger Subsidiary of this
Agreement, and the consummation by CVS 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
Delaware Secretary of State and appropriate documents with the
relevant authorities of other states in which Merger Subsidiary is
qualified to do business; (b) compliance with any applicable
requirements of the HSR Act; (c) compliance with any applicable
requirements of the 1933 Act; (d) compliance with any applicable
requirements of the 1934 Act; (e) compliance with any other applicable
securities laws; (f) those that may be required solely by reason of
Revco's (as opposed to any other third party's) participation in the
transactions contemplated by this Agreement; (g) the approval of the
relevant pharmacy boards and alcoholic beverage commissions or
comparable entities in the states in which CVS and its Subsidiaries do
business; (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 CVS; 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 CVS and
Merger Subsidiary of this Agreement do not, and the consummation by
CVS and Merger Subsidiary of the transactions contemplated hereby will
not (a) assuming receipt of the approval of stockholders referred to
in Section 4.02, contravene or conflict with the certificate of
incorporation, bylaws or similar organizational documents of CVS or
any of its
<PAGE>
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 CVS 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 CVS or Merger Subsidiary or to a loss of any benefit to which CVS
or Merger Subsidiary is entitled under any provision of any agreement,
contract or other instrument binding upon CVS 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 $500,000 (a "CVS Agreement") or any
license, franchise, permit or other similar authorization held by CVS
or Merger Subsidiary, or (d) result in the creation or imposition of
any Lien on any asset of CVS 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 CVS.
SECTION 4.05. Capitalization of CVS. (a) The authorized
capital stock of CVS consists of 300,000,000 shares of CVS Common
Stock, 120,619 shares of Cumulative Preferred Stock, par value $0.01
per share (the "CVS Preferred Stock"), and 50,000,000 shares of
Preference Stock, par value $1 per share (the "CVS ESOP Preference
Stock"). As of the close of business on January 31, 1997, (i)
106,907,752 shares of CVS Common Stock are issued and outstanding,
5,830,722 shares of CVS Common Stock are held in CVS' treasury,
6,392,382 shares of CVS Common Stock are reserved for issuance upon
conversion of shares of CVS ESOP Preference Stock, 3,000,000 shares of
CVS Common Stock are reserved for additional grants under option and
other stock-based plans and 5,490,637 shares of CVS Common Stock are
reserved for issuance pursuant to options previously granted pursuant
to CVS option plans, (ii) 5,558,595 shares of CVS ESOP Preference
Stock are issued and outstanding and (iii) no shares of CVS Preferred
Stock are issued or outstanding. All the outstanding shares of CVS'
capital stock are, and all shares which may be issued pursuant to CVS
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 January
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 CVS, (y) no securities of CVS convertible into or exchangeable for
shares of capital stock or voting securities of CVS, and (z) no
options, warrants or other rights to acquire from CVS, and no
preemptive or similar rights, subscriptions or other rights,
convertible
<PAGE>
securities, agreements, arrangements or commitments of any character,
relating to the capital stock of CVS, obligating CVS to issue,
transfer or sell, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting
securities of CVS or obligating CVS 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 "CVS
Securities"). None of CVS or its Subsidiaries has any contractual
obligation to redeem, repurchase or otherwise acquire any CVS
Securities or any CVS Subsidiary Securities, including as a result of
the transactions contemplated by this Agreement.
(b) Except for the provisions of CVS' certificate of
incorporation relating to the voting of CVS 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 CVS or any Subsidiary of CVS is a party with
respect to the voting of the capital stock of CVS or any Subsidiary of
CVS.
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 CVS, is owned
by CVS, directly or indirectly, free and clear of any consensual 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 CVS or any Subsidiary of CVS
convertible into or exchangeable for shares of capital stock or other
voting securities or ownership interests in any Subsidiary of CVS, or
(ii) options or other rights to acquire from CVS or any Subsidiary of
CVS, and no other obligation of CVS or any Subsidiary of CVS 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
CVS (the items in clauses (i) and (ii) being referred to collectively
as the "CVS Subsidiary Securities").
SECTION 4.07. SEC Filings. (a) CVS has filed all required
reports, schedules, forms, statements and other documents with the SEC
since January 1, 1995 (the "CVS SEC Documents").
(b) As of its filing date, each CVS SEC Document filed
pursuant to the 1934 Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading, except to the extent that such
statements have been modified or superseded by a later filed CVS SEC
Document.
<PAGE>
(c) Each CVS 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 CVS SEC Document.
SECTION 4.08. Financial Statements. The audited consolidated
financial statements and unaudited consolidated interim financial
statements of CVS (or its predecessor, Melville Corporation) included
in CVS' Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (the "CVS 10-K") and its Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1996 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 CVS
(or such predecessor) 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, "CVS Balance Sheet" means
the consolidated balance sheet of Melville Corporation as of December
31, 1995 set forth in the CVS 10-K and "CVS Balance Sheet Date" means
December 31, 1995.
SECTION 4.09. Disclosure Documents. (a) The Registration
Statement on Form S-4 of CVS (the "Form S-4") to be filed under the
1933 Act relating to the issuance of CVS Common Stock in the Merger
and the proxy statement of CVS (the "CVS Proxy Statement" and,
together with the Form S-4, the "CVS Disclosure Documents"), to be
filed with the SEC in connection with 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 and 1934 Act and the rules
and regulations promulgated thereunder.
(b) (i) Neither the Form S-4 nor any amendment or supplement
thereto will at the time it becomes effective under the 1933 Act or at
the Effective Time contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii)
neither the CVS Proxy Statement nor any amendment or supplement
thereto will, at the date it is first mailed to stockholders of CVS or
at the time such stockholders vote on the approval of the issuance of
shares of CVS Common Stock in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the
<PAGE>
statements therein, in the light of the circumstances under which they
were made, not misleading. No representation or warranty is made by
CVS in this Section 4.09 with respect to statements made or
incorporated by reference therein based on information supplied by
Revco for inclusion or incorporation by reference in any CVS
Disclosure Document.
SECTION 4.10. Information Supplied. None of the information
supplied or to be supplied by CVS for inclusion or incorporation by
reference in the Revco Proxy Statement or any amendment or supplement
thereto will, at the date the Revco Proxy Statement or any amendment
or supplement thereto is first mailed to stockholders of Revco 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 CVS SEC Documents filed prior to the date of this
Agreement or as disclosed in Schedule 4.11 and except in connection
with the Permitted CVS Transactions, since September 30, 1996, CVS 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 CVS, except for general economic changes
and changes that affect the industry of CVS 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 CVS (other than payment of CVS' regular quarterly cash
dividend on CVS Common Stock and payment of required dividends on CVS
ESOP Preference Stock) or any repurchase, redemption or other
acquisition by CVS or any Subsidiary of CVS of any amount of
outstanding shares of capital stock or other equity securities of, or
other ownership interests in, CVS or any Subsidiary of CVS;
(c) any amendment of any term of any outstanding security of
CVS or any Subsidiary of CVS that would materially increase the
obligations of CVS or such Subsidiary under such security;
(d) (x) any incurrence or assumption by CVS or any
Subsidiary of CVS 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 Revco and its Subsidiaries as
<PAGE>
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 CVS or any Subsidiary of CVS
for the obligations of any other Person (other than any Subsidiary of
CVS), other than in the ordinary course of business consistent with
past practice or in connection with obligations of Revco and its
Subsidiaries assumed at the Effective Time;
(e) any creation or assumption by CVS or any Subsidiary of
CVS of any consensual Lien on any material asset of CVS or any
Subsidiary of CVS 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 CVS or any Subsidiary of
CVS other than (i) prior to the date hereof to former Subsidiaries
prior to or in connection with the disposition of the Marshalls,
KayBee Toys, This End Up, Wilsons Leather, Footstar, Inc. (including
Meldisco, Footaction and Thom McAn) and Linens 'n Things, Inc.
businesses pursuant to Melville Corporation's publicly announced
restructuring program (the "CVS Restructuring Program"), (ii) loans,
advances or capital contributions to or investments in wholly-owned
Subsidiaries of CVS or (iii) loans or advances to employees of CVS or
any Subsidiary of CVS made in the ordinary course of business
consistent with past practices;
(g) (i) any contract or agreement entered into by CVS or any
Subsidiary of CVS 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 CVS or any Subsidiary of CVS 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 CVS, other than, in the case of (i) and (ii), (x)
transactions, commitments, contracts or agreements in the ordinary
course of business consistent with past practice, (y) those in
connection with the CVS Restructuring Program and (z) those
contemplated by this Agreement; or
(h) any material change in any method of accounting or
accounting principles or practice by CVS or any Subsidiary of CVS,
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 CVS or any Subsidiary
of CVS since September 30, 1996,
<PAGE>
whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) liabilities or obligations (i) disclosed or provided for
in the CVS Balance Sheet or in the notes thereto, (ii) disclosed in
the CVS 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 CVS; 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 CVS SEC
Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or to the knowledge of
CVS, threatened against or affecting, CVS or any Subsidiary of CVS 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 CVS.
SECTION 4.14. Taxes. (a) CVS and each of its Subsidiaries
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, complete in all material respects;
(b) CVS and each of its Subsidiaries has paid (or has had
paid on its behalf) or, where payment is not yet due, has established
in accordance with GAAP (or has had established on its behalf and for
its sole benefit and rcourse) or will establish or cause to be
established on or before the Effective Time an adequate accrual for
the payment of, all material Taxes due with respect to any period
ending prior to or as of the Effective Time; and
(c) the federal income Tax Returns of CVS 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.
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),
<PAGE>
maintained by CVS, any of its Subsidiaries or any ERISA Affiliate,
that together with CVS would be deemed a "controlled group" within the
meaning of Section 4001(a)(14) of ERISA, or with respect to which CVS
or any of its Subsidiaries has or may have a liability (the "CVS
Benefit Plans"). Since September 30, 1996, there has been no change,
amendment, modification to, or adoption of, any CVS Benefit Plan, in
each case, that has had, or would be reasonably likely to have, a
Material Adverse Effect on CVS.
(b) With respect to each CVS Benefit Plan, except as would
not, individually or in the aggregate, have a Material Adverse Effect
on CVS: (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 CVS 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 CVS nor any ERISA Affiliate has incurred any
liability under Title IV of ERISA (including Sections 4063-4064 and
4069 of ERISA) since the effective date 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 CVS.
(e) With respect to each CVS Benefit Plan that is a "welfare
plan" (as defined in Section 3(1) of ERISA), no such plan provides
medical or death benefits with respect to current or former employees
of CVS or any of its Subsidiaries beyond their termination of
employment, other than on an employee-pay-all basis, except as would
not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on CVS.
(f) The consummation of the transactions contemplated by
this Agreement will not (i) 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 CVS Benefit Plan, or (ii)
constitute or result in a prohibited transaction under Section 4975 of
the Code or Section 406 or 407 of ERISA with respect to any CVS
Benefit Plan.
<PAGE>
(g) There is no CVS 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) Neither CVS 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 CVS, (i) there is no labor strike, slowdown
or work stoppage or lockout against CVS 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 CVS, no question concerning representation
exists with respect to the employees of CVS or any of its Significant
Subsidiaries.
SECTION 4.16. Compliance with Laws; No Default; No
Non-Competes. (a) Neither CVS nor any of its Subsidiaries is in
violation of or has violated or failed to comply with any statute,
law, ordinance, regulation, rule, judgment, decree, order, writ,
injunction, permit or license or other authorization or approval of
any Governmental Authority applicable to its business or operations,
except for violations and failures to comply that would not,
individually or in the aggregate, be reasonably likely to result in a
Material Adverse Effect on CVS.
(b) Each CVS Agreement is a valid, binding and enforceable
obligation of CVS 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 CVS. None of CVS 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 CVS Agreement, except, in the
case of clauses (i) (with respect to organizational documents that are
partnership, joint venture or similar documents) and (ii), 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 CVS. CVS 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 CVS. Neither CVS nor any Subsidiary of CVS is a party to any
agreement that expressly limits the ability of CVS or any Subsidiary
of CVS 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 CVS after giving effect to
the Merger.
SECTION 4.17. Finders' Fees. Except for Donaldson, Lufkin &
Jenrette Securities Corporation and CS First Boston Corporation, a
copy of each of whose engagement agreement has been provided to Revco,
no investment banker, broker, finder, other intermediary or other
Person is entitled to any fee or commission from CVS or any Subsidiary
of CVS upon consummation of the transactions contemplated by this
Agreement.
SECTION 4.18. Environmental Matters. (a) Except as set forth
in the CVS 10-K:
<PAGE>
(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 CVS
or any Subsidiary of CVS, is threatened by any Person,
against CVS or any Subsidiary of CVS 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 CVS;
(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 CVS, previously owned, leased or
operated by CVS or any Subsidiary of CVS, which
circumstance, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on CVS;
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 CVS.
(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 "CVS" shall be substituted for the word
"Revco".
SECTION 4.19. Assets. The assets, properties, rights and
contracts, including (as applicable), title or leaseholds thereto, of
CVS and its Subsidiaries, taken as a whole, are sufficient to permit
CVS 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 CVS. All material real property
owned by CVS 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 CVS included in the CVS SEC
Documents filed prior to the date hereof, (B) taxes and general and
special assessments not in default and payable
<PAGE>
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. Opinion of Financial Advisor. CVS has received
the written opinion of Donaldson, Lufkin & Jenrette Securities
Corporation to the effect that, as of the date hereof, the Conversion
Number to be received by the holders of Shares in the Merger is fair
to CVS from a financial point of view. CVS has delivered to Revco a
copy of such opinion.
SECTION 4.21. Transactions with Affiliates. Except to the
extent disclosed in the CVS SEC Documents filed prior to the date of
this Agreement and except as set forth on Schedule 4.21, from January
1, 1996 through the date of this Agreement, there have been no
transactions, agreements, arrangements or understandings between CVS
or its Subsidiaries, on the one hand, and CVS' Affiliates (other than
wholly-owned Subsidiaries of CVS) 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.
SECTION 4.22. Accounting Matters. Neither CVS nor, to its
knowledge, any of its Subsidiaries has taken or agreed to take any
action that would prevent CVS from accounting for the business
combination to be effected by the Merger as a "pooling of interests".
SECTION 4.23. Insurance. Except as set forth on Schedule
4.23, CVS and each of its Significant Subsidiaries are insured by
insurers, reasonably believed by CVS to be of recognized financial
responsibility and solvency, against such losses and risks and in such
amounts as are customary in the businesses in which they are engaged.
CVS' unsettled workers compensation and general liability claims would
not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect on CVS.
SECTION 4.24. Takeover Statutes. The Board of Directors of
CVS has approved the Merger and this Agreement, and such approval is
sufficient to render inapplicable to the Merger, this Agreement, and
the transactions contemplated by this Agreement the provisions of
Section 203 of the Delaware Law. To the best of CVS' knowledge, no
other Takeover Statute applicable to CVS or any of its Subsidiaries,
is applicable to the Merger or the other transactions contemplated
hereby.
SECTION 4.25. Pooling Letter. CVS has received a letter from
KPMG Peat Marwick, LLP dated as of the date of this Agreement and
addressed to CVS, a copy of which has been delivered to Revco, stating
that, as of the date of this Agreement, 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
<PAGE>
business combinations, no conditions exist which would preclude CVS
from accounting for the Merger as a pooling of interests.
SECTION 4.26. Affiliates. Schedule 4.26 sets forth each
Person who, as of the date hereof, is, to the best of CVS' knowledge,
deemed to be an Affiliate of CVS.
ARTICLE 5
COVENANTS
SECTION 5.01. Conduct of Revco. Revco 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 Revco to fulfill
its obligations hereunder, Revco 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 CVS
(which approval shall not be unreasonably withheld):
(a) Revco will not adopt or propose any change in its
certificate of incorporation or any material change in its bylaws;
(b) Revco will not, and will not permit any Subsidiary of
Revco to, adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other material reorganization of Revco or any of
its Subsidiaries (other than a liquidation or dissolution of any
Subsidiary or a merger or consolidation between wholly owned
Subsidiaries);
(c) Revco will not, and will not permit any Subsidiary of
Revco 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 so long as no significant overlap exists between the
stores so acquired and CVS' stores and (ii) any capital expenditure
permitted by Section 5.01(k);
(d) Revco will not, and will not permit any Subsidiary of
Revco to, sell, lease, license, close, shut down or otherwise dispose
of any assets (other than
<PAGE>
inventory) or stores or relocate any stores, except (i) pursuant to
existing contracts or commitments listed on Schedule 5.01 or (ii)
sales or other dispositions of assets (other than stores) in the
ordinary course of business consistent with past practice;
(e) Revco will not, and will not permit any Subsidiary of
Revco 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 dividends paid by any Subsidiary of Revco to Revco or any
other Subsidiary of Revco;
(f) Revco will not, and will not permit any Subsidiary of
Revco 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 Revco
or its Subsidiaries, other than (i) issuances pursuant to the exercise
of stock-based awards or options (including under the plans described
in Section 3.05(a)) outstanding on the date hereof , (ii) options and
Shares that may become issuable under Renoir's 1993 Employee Stock
Purchase Plan, (iii) issuances by any Subsidiary of Revco to Revco or
any other Subsidiary of Revco, (iv) Shares issuable in connection with
Revco matching contributions pursuant to Revco's 401(k) Savings Plan
and (v) Shares issuable pursuant to options granted to newly hired
management level employees in accordance with Revco's past practices;
(g) Revco will not, and will not permit any Subsidiary of
Revco to, redeem, purchase or otherwise acquire directly or indirectly
any of Revco's capital stock;
(h) Revco will not, and will not permit any Subsidiary of
Revco to, close, shut down, or otherwise eliminate any of Revco's or
such Subsidiary's distribution centers;
(i) Revco will not, and will not permit any Subsidiary of
Revco to, move the location, close, shut down or otherwise eliminate
Revco's or such Subsidiary's headquarters or effect a general staff
reduction at such headquarters (other than the shutdown of, and
related staff reduction at, the headquarters of Big B in Bessemer,
Alabama);
(j) Revco will not, and will not permit any Subsidiary of
Revco to, (i) enter into (or commit to enter into) any new lease or
renew any existing lease (except pursuant to commitments for such
lease or lease renewal entered into as of the date hereof) or (ii)
purchase or acquire or enter into any agreement to purchase or acquire
any real estate (except pursuant to commitments existing as of the
date hereof);
<PAGE>
(k) Revco will not, and will not permit any Subsidiary of
Revco to, make or commit to make any capital expenditure (including
for store remodellings, store signage and information systems) except
for (i) (x) information systems expenditures in respect of the
Integrated Voice Response and Patient Services Information Document
projects (the "IS Projects") not to exceed $1,850,000 in the
aggregate, provided that Revco shall keep CVS informed on a prompt
basis of the status of each IS Project and shall use reasonable best
efforts to terminate any further work or expenditure on either or both
such projects if so requested by CVS, (y) information systems
expenditures in Big B stores acquired as a result of the Big B
Acquisition not in excess of $30,000 per store, and (z) expenditures
on information systems as part of the expenditures permitted in
subclauses (ii), (iv) and (v) of this clause (k) (it being understood
that this clause (k)(i) will not restrict expenditures necessary for
maintenance of existing information systems), (ii) expenditures not in
excess of $50,000 per store in respect of any store acquired in
accordance with Section 5.02(c)(i), (i ii) expenditures in connection
with changing the external store signage in order to change the name
of Big B stores to Revco, to the extent such expenditures are
contractually committed as of the date hereof, (iv) expenditures not
in excess of $7.5 million in connection with modifications to Big B's
warehouse in Bessemer, Alabama, (v) expenditures in respect of store
commitments specified in paragraph (j) above in an amount not in
excess of that specified in Schedule 5.01(k) for each such store (or,
for any such store for which no amount is so specified, not in excess
of $300,000), (vi) expenditures not in excess of $1,500,000 incurred
pursuant to an agreement dated December 19, 1996 with Andersen
Consulting, and (vii) other individual capital expenditure projects or
items (in respect of matters not covered above in this clause (k)) not
exceeding $1 million per project or item,
(l) Revco will not, and will not permit any Subsidiary of
Revco to, without the prior written consent of CVS, 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 relating to any material Tax, settle any material 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 would have the effect of materially increasing the
aggregate Tax liability or materially reducing the aggregate tax
assets of Revco and its Subsidiaries, taken as a whole, or, to the
knowledge of Revco, CVS and its Subsidiaries, taken as a whole;
(m) Revco will not, and will not permit any Subsidiary of
Revco to, agree or commit to do any of the foregoing; and
(n) Revco will not, and will not permit any Subsidiary of
Revco to take or agree or commit to take any action that would make
any representation and
<PAGE>
warranty of Revco hereunder inaccurate in any material respect at, or
as of any time prior to, the Effective Time.
SECTION 5.02. Conduct of CVS. 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 CVS to fulfill its obligations hereunder, CVS and its Subsidiaries
shall conduct their business in the ordinary course consistent with
past practice and shall use their best efforts to preserve intact
their business organizations and relationships with customers,
suppliers, creditors and business partners and shall use their
reasonable efforts to keep available the services of their present
officers and employees. It is understood that nothing in this
Agreement will restrict (x) any acquisition by CVS or any of its
Subsidiaries, in one or more transactions, of any drug store or any
drug store or related business for cash in an aggregate amount not to
exceed $350 million so long as no significant overlap exists between
the stores so acquired and Revco's stores or (y) any disposition by
CVS or its Subsidiaries, in one or more transactions, of (1) any or
all of its Bob's Stores business, (2) its ownership interest in Linens
'n Things, Inc. or (3) its ownership interest in any real property or
stores leased primarily to Bob's Stores Center, Inc., Linens 'n
Things, Inc. or their respective Subsidiaries or to any former
Subsidiary of CVS disposed of pursuant to the CVS Restructuring
Program ((x) and (y) being referred to herein as the "Permitted CVS
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 Revco (which
approval shall not be unreasonably withheld):
(a) CVS 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;
(b) CVS will not, and will not permit any Subsidiary of CVS
to, (i) adopt a plan or agreement of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other material reorganization of CVS or any of its Subsidiaries (other
than a liquidation or dissolution of any Subsidiary or a merger or
consolidation between wholly owned Subsidiaries) or (ii) make any
material acquisition of the business or stores of any Person (other
than a wholly owned Subsidiary);
(c) CVS will not, and will not permit any Subsidiary of CVS
to, sell, lease, license or otherwise dispose of any assets (other
than inventory) in an amount that would be material to CVS and its
Subsidiaries, taken as a whole, except (i) pursuant to existing
contracts or commitments or (ii) in the ordinary course of business
consistent with past practice;
<PAGE>
(d) CVS will not, and will not permit any Subsidiary of CVS
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 CVS or
its Subsidiaries, other than (v) issuances by any Subsidiary of CVS to
CVS or any other Subsidiary of CVS, (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 CVS
Common Stock upon conversion of shares of CVS ESOP Preference Stock
outstanding on the date hereof, and (z) any grant of options or other
stock based awards in respect of CVS Common Stock to employees or
directors of CVS or any of its Subsidiaries that could result in the
issuance of not more than 1,600,000 shares in the aggregate of CVS
Common Stock;
(e) CVS will not, and will not permit any Subsidiary of CVS
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 CVS in an aggregate amount
not in excess of $0.14 per share per calendar quarter, (ii) required
cash dividends on CVS ESOP Preference Stock and (iii) dividends paid
by any Subsidiary of CVS to CVS or any other Subsidiary of CVS;
(f) CVS will not, and will not permit any Subsidiary of CVS
to, redeem, purchase or otherwise acquire directly or indirectly any
of CVS' capital stock;
(g) CVS will not, and will not permit any Subsidiary of CVS
to, agree or commit to do any of the foregoing; and
(h) CVS will not, and will not permit any Subsidiary of CVS
to take or agree or commit to take any action that would make any
representation and warranty of CVS hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time.
SECTION 5.03. Stockholder Meetings; Proxy Materials; Form
S-4. (a) Unless the Board of Directors of Revco shall take any action
permitted by the third sentence of this Section 5.03(a), Revco shall
cause a meeting of its stockholders (the "Revco 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 and the Merger (the "Revco Stockholder
Approval"). Except as provided in the next sentence, the Board of
<PAGE>
Directors of Revco shall recommend approval and adoption of this
Agreement and the Merger by Revco's stockholders. The Board of
Directors of Revco shall be permitted to (i) not recommend to Revco's
stockholders that they give the Revco Stockholder Approval or (ii)
withdraw or modify in a manner adverse to CVS its recommendation to
Revco's stockholders that they give the Revco Stockholder Approval,
but in each of cases (i) and (ii) only if and to the extent that Revco
has complied with Section 5.05 and a Superior Proposal is pending at
the time Revco's Board of Directors determines to take any such action
or inaction; provided that no such failure to recommend, withdrawal or
modification shall be made unless Revco shall have delivered to CVS a
written notice (a "Notice of Superior Proposal") advising CVS that the
Board of Directors of Revco has received a Superior Proposal and
identifying the Person making such Superior Proposal; provided,
further that nothing contained in this Agreement shall prevent the
Board of Directors of Revco from complying with Rule 14e-2 under the
1934 Act with regard to an Acquisition Proposal. In connection with
such stockholder meeting, Revco (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 stockholders as promptly as
practicable the Revco 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 Revco Stockholder
Approval and (z) will otherwise comply with all legal requirements
applicable to such meeting. For purposes of this Agreement, "Superior
Proposal" means any bona fide Acquisition Proposal for at least a
majority of the outstanding Shares on terms that the Board of
Directors of Revco determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation,
taking into account all the terms and conditions of the Acquisition
Proposal, including any break-up fees, expense reimbursement
provisions and conditions to consummation) are more favorable and
provide greater value to all Revco's stockholders than this Agreement
and the Merger taken as a whole. 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 Revco or any Subsidiary of Revco or the acquisition of any
equity interest in, or a substantial portion of the assets of, Revco
or any Subsidiary of Revco, 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 Revco and
its Subsidiaries taken as a whole, that Revco has no reason to believe
would lead to a change of control of Revco (or to the acquisition of a
substantial portion of the assets of Revco and its Subsidiaries).
(b) Unless the Board of Directors of Revco shall take any
action permitted by the third sentence of paragraph (a) above, CVS
shall cause a meeting of its stockholders (the "CVS Stockholder
Meeting") to be duly called and held as soon as reasonably practicable
after the date of this Agreement for the purpose
<PAGE>
of voting on the issuance of shares of CVS Common Stock in connection
with the Merger (the "CVS Stockholder Approval") and, at such
stockholder meeting, the Directors of CVS shall recommend approval by
CVS' stockholders of such issuance of shares of CVS Common Stock.
Unless the Board of Directors of Revco shall take any action permitted
by the third sentence of paragraph (a) above in connection with such
stockholder meeting, CVS (i) 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 stockholders as promptly as
practicable the CVS Proxy Statement and all other proxy materials for
such meeting, (ii) will use its reasonable best efforts to obtain the
CVS Stockholder Approval and (iii) will otherwise comply with all
legal requirements applicable to such meeting.
(c) CVS shall promptly prepare and file with the SEC the
Form S-4 with respect to the CVS 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 CVS Common Stock. Subject to the
terms and conditions of this Agreement and unless the Board of
Directors of Revco shall take any action permitted by the third
sentence of paragraph (a) above, CVS shall 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, Revco will give CVS, its counsel, financial advisors, auditors
and other authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of Revco
and its Subsidiaries, will furnish to CVS, 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 Revco's employees, auditors,
counsel and financial advisors to cooperate with CVS in its
investigation of the business of Revco and its Subsidiaries; provided
that no investigation pursuant to this Section shall affect any
representation or warranty given by Revco to CVS hereunder. In the
event Revco requests approval of CVS pursuant to Section 5.01 to enter
into any new store lease, CVS agrees not to contact the applicable
landlord regarding such store lease or property unless CVS is already
involved in discussions with the landlord regarding such lease or
property and such discussions have not been terminated prior to such
request. 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 8, 1997 between CVS and Revco (the
"Confidentiality Agreement").
<PAGE>
(b) To the extent permitted by applicable law, from the date
hereof until the Effective Time, CVS will give Revco, its counsel,
financial advisors, auditors and other authorized representatives
reasonable access during normal business hours to the offices,
properties, books and records of CVS and its Subsidiaries, will
furnish to Revco, 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
CVS' employees, auditors, counsel and financial advisors to cooperate
with Revco in its investigation of the business of CVS and its
Subsidiaries; provided that no investigation pursuant to this Section
shall affect any representation or warranty given by CVS to Revco
hereunder. Such information shall be held in confidence to the extent
required by, and in accordance with, the Confidentiality Agreement.
SECTION 5.05. Other Offers. From the date hereof until the
termination hereof, Revco will not and will cause its Subsidiaries and
the officers, directors, employees, investment bankers, consultants
and other agents of Revco and its Subsidiaries and the Affiliates of
Revco over which Revco 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 Revco or any Subsidiary of Revco or afford access to the
properties, books or records of Revco or any Subsidiary of Revco to,
any Person that has made any Acquisition Proposal; provided that
nothing contained in this Section 5.05 shall prevent Revco from
furnishing non-public information to, or entering into discussions or
negotiations with, any Person in connection with an unsolicited bona
fide Acquisition Proposal received from such Person so long as prior
to furnishing non-public information to, or entering into discussions
or negotiations with, such Person, Revco receives from such Person an
executed confidentiality agreement with terms no less favorable to
Revco than those contained in the Confidentiality Agreement; provided,
further that nothing contained in this Agreement shall prevent (a) the
Board of Directors of Revco from complying with Rule 14e-2 under the
1934 Act with regard to an Acquisition Proposal or (b) Revco from
taking any action, reasonably acceptable to CVS, that may be necessary
in order to comply with Revco's obligations under Section 5.07. Revco
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) CVS
after receipt of any Acquisition Proposal or any request for nonpublic
information relating to Revco or any Subsidiary of Revco or for access
to the properties, books or records of Revco or any Subsidiary of
Revco by any Person that may be considering making, or has made, an
Acquisition Proposal. Revco will keep CVS reasonably informed of the
status and material terms of any Superior Proposal. Revco shall give
CVS at least 24 hours' advance notice of any information to be
supplied to, and at least 48 hours' advance notice
<PAGE>
of any agreement to be entered into with, any Person making such
Superior Proposal. Revco will, and will cause its Subsidiaries and the
officers, directors, employees and other agents of Revco and its
Subsidiaries and the Affiliates of Revco over which Revco exercises
control to, immediately cease and cause to be terminated all
discussions and negotiations, if any, that have taken place prior to
the date hereof with any parties with respect to any Acquisition
Proposal.
SECTION 5.06. Notices of Certain Events. (a) Revco and CVS
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) Revco shall promptly notify CVS of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge
threatened against, relating to or involving or otherwise affecting
Revco or any Subsidiary of Revco which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to
Section 3.13 or which relate to the consummation of the transactions
contemplated by this Agreement.
(c) CVS shall promptly notify Revco of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge
threatened against, relating to or involving or otherwise affecting
CVS or any Subsidiary of CVS 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. Best Efforts. (a) Subject to the terms and
conditions of this Agreement, each party will use its 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
<PAGE>
expiration or termination of the applicable waiting periods under the
HSR Act as soon as practicable.
(b) Each of CVS and Revco 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 Merger
Agreement under the HSR Act or any other Antitrust Law, use its best
efforts to (i) cooperate in all respects with each other in connection
with any filing or submission and in connection with any investigation
or other inquiry, including any proceeding initiated by a private
party; (ii) keep the other party informed in all material respects of
any material communication received by such party from, or given by
such party to, the Federal Trade Commission (the "FTC"), the Antitrust
Division of the Department of Justice (the "DOJ") or any other
Governmental Authority and of any material communication received or
given in connection with any proceeding by a private party, in each
case regarding any of the transactions contemplated hereby; and (iii)
permit the other party to review any material communication given by
it to, and consult with each other in advance of any meeting or
conference with, the FTC, the DOJ or any such other Governmental
Authority or, in connection with any proceeding by a private party,
with any other Person, and to the extent permitted by the FTC, the DOJ
or such other applicable Governmental Authority or other Person, give
the other party the opportunity to attend and participate in such
meetings and conferences. 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.
(c) In furtherance and not in limitation of the covenants of
the parties contained in Sections 5.07(a) and (b), each of CVS and
Revco shall use its best efforts to resolve such objections if any, as
may be asserted with respect to the transactions contemplated hereby
under any Antitrust Law. In connection with the foregoing, if any
administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement
as violative of any Antitrust Law, each of CVS and Revco shall
cooperate in all respects with each other and use its respective best
efforts to contest and resist any such action or proceeding and to
have vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order, whether temporary, preliminary or
permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement.
Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 5.07 shall limit a
<PAGE>
party's right to terminate this Agreement pursuant to Section
7.01(b)(i) or 7.01(c) so long as such party has up to then complied in
all material respects with its obligations under this Section 5.07.
(d) If any objections are asserted with respect to the
transactions contemplated hereby under any Antitrust Law or if any
suit is instituted by any Governmental Authority or any private party
challenging any of the transactions contemplated hereby as violative
of any Antitrust Law, each of CVS and Revco shall use its best efforts
to resolve any such objections or challenge as such Governmental
Authority or private party may have to such transactions under such
Antitrust Law so as to permit consummation of the transactions
contemplated by this Agreement. In furtherance and not in limitation
of the foregoing, each of CVS and Revco (and, to the extent required
by any Governmental Authority, its respective Subsidiaries and
Affiliates over which it exercises control) shall be required to enter
into a settlement, undertaking, consent decree, stipulation or other
agreement (each, a "Settlement") with a Governmental Authority
regarding antitrust matters in connection with the transactions
contemplated by this Agreement, but, notwithstanding anything else
contained in this Agreement, neither CVS nor Revco shall be required
to enter into any Settlement that requires CVS and/or Revco to hold
separate (including by establishing a trust or otherwise) or to sell
or otherwise dispose of stores of CVS (and its Subsidiaries) and/or
Revco (and its Subsidiaries) the aggregate revenues of which (for the
fiscal year ended December 31, 1996, in the case of CVS stores, and
June 1, 1996, in the case of Revco stores) exceeded $400 million (such
a Settlement so requiring the holding separate, sale or other
disposition of such stores the aggregate revenues of which, so
determined, did not exceed $400 million being referred to herein as
the "Threshold Settlement"); provided that there shall be excluded
from stores counted in determining whether the Threshold Settlement
has been exceeded any stores acquired pursuant to, and CVS agrees that
it shall take any action necessary to resolve any objections that are
raised as contemplated by this Section 5.07 in connection with, any
acquisition permitted under clause (x) of the second sentence of
Section 5.02 or under Section 5.02(b)(ii); provided further that any
stores acquired by Revco as permitted by Section 5.01(c) shall be
counted in determining whether the Threshold Settlement has been
exceeded. The parties agree that compliance with any such Threshold
Settlement may require holding separate, sale or disposition of stores
of either or both of the parties.
SECTION 5.08. Cooperation. Without limiting the generality
of Section 5.07, CVS and Revco shall together, or pursuant to an
allocation of responsibility to be agreed between them, coordinate and
cooperate (i) with respect to the timing of the CVS Stockholder
Meeting and Revco Stockholder Meeting and shall use their reasonable
efforts to hold such meetings on the same day, (ii) in connection with
the preparation of the Revco Proxy Statement and the CVS Disclosure
Documents, (iii) in determining whether any action by or in respect
of, or filing
<PAGE>
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 Revco Proxy Statement or the CVS
Disclosure Documents and seeking timely to obtain any such actions,
consents, approvals or waivers.
<PAGE>
SECTION 5.09. Public Announcements. So long as this
Agreement is in effect, CVS and Revco 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 Zell/Chilmark
Stockholder Agreement or the transactions contemplated hereby or
thereby and, except as may be required by applicable law, court
process or any listing agreement with any national securities
exchange, will not issue any such press release or make any such SEC
filing or other public statement prior to such consultation and
providing the other party with a reasonable opportunity to comment
thereon.
SECTION 5.10. Further Assurances. At and after the Effective
Time, the officers and directors of the Surviving Corporation will be
authorized to execute and deliver, in the name and on behalf of Revco
or Merger Subsidiary, any deeds, bills of sale, assignments or
assurances and to take and do, in the name and on behalf of Revco 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 Revco 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) Revco
shall use its best efforts to deliver to CVS, 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 3.27.
(b) CVS 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 4.26.
(c) Prior to the Closing Date, Revco shall cause to be
delivered to CVS a letter identifying, to the best of Revco's
knowledge, all Persons who are, at the time of the Revco Stockholder
Meeting described in Section 5.03(a), deemed to be "affiliates" of
Revco for purposes of Rule 145 under the 1933 Act (the "1933 Act
Affiliates"). Revco shall use its reasonable best efforts to cause
each Person who is so identified as a 1933 Act Affiliate to deliver to
CVS 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, CVS shall enter into
a Registration Rights Agreement in the form attached as Exhibit B
hereto with each of the 1933 Act Affiliates of Revco that has
theretofore executed and delivered to CVS letter agreements
substantially in the form of Exhibits C-1 and C-3 hereto.
<PAGE>
SECTION 5.12. Director and Officer Liability. CVS agrees
that at all times after the Effective Time, it shall cause the
Surviving Corporation and its Subsidiaries to indemnify each Person
who is now, or has been at any time prior to the date hereof, an
employee, agent, director or officer of Revco or of any Subsidiary of
Revco, 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. CVS 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 Revco and its Subsidiaries
on the date hereof (provided that CVS 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 Revco and its Subsidiaries for such insurance on the date of
this Agreement, then CVS 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. CVS 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 certificate of
incorporation, bylaws, or other similar organizational documents of
Revco or any of its Subsidiaries or the Delaware Law. The rights under
this Section 5.12 shall survive consummation of the Merger and are
expressly intended to benefit each Indemnified Party. CVS agrees to
cause the Surviving Corporation and any of its Subsidiaries (or their
successors) to maintain in effect for a period of six years the
provisions of its certificate of incorporation or bylaws or similar
<PAGE>
organizational documents providing for indemnification of Indemnified
Parties, with respect to facts or circumstances occurring at or prior
to the Effective Time, to the fullest extent provided by law; provided
that the foregoing shall not in any way restrict or preclude any sale,
liquidation or dissolution of any Subsidiary of CVS at any time after
the Effective Time.
SECTION 5.13. Obligations of Merger Subsidiary. CVS 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. CVS shall use its best
efforts to cause the shares of CVS 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. If any Takeover Statute
is or may become applicable to the Merger, each of CVS and Revco 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. Confidentiality/Standstill Agreement. The
parties hereto agree that the Confidentiality Agreement shall be
hereby amended to provide that any provision therein which in any
manner would be inconsistent with this Agreement or the Zell/Chilmark
Stockholder Agreement or the transactions contemplated hereby or
thereby shall terminate as of the date hereof; provided, however, that
such provisions of the Confidentiality Agreement shall be reinstated
in the event of any termination of this Agreement. Revco agrees not to
take any action that would impede, bar, restrict or otherwise
interfere in any material respect with CVS' rights under the
Zell/Chilmark Stockholder Agreement. The provisions of this Section
5.16 shall survive any termination of this Agreement.
SECTION 5.17. Tax and Accounting Treatment. Each of CVS and
Revco shall not take any action and shall not fail to take any action
which action or failure to act would prevent, or would be reasonably
likely to prevent, the Merger from qualifying (A) for pooling of
interests accounting treatment or (B) as a reorganization within the
meaning of Section 368(a) of the Code, and Revco shall use reasonable
efforts to obtain the opinion of counsel referred to in Section
6.03(b).
SECTION 5.18. Employee Benefits. (a) Subject to Section
1.04, following the Effective Time, CVS shall, or shall cause the
Surviving Corporation to (i) honor all obligations under employment
agreements of Revco and (ii) pay all benefits accrued through the
Effective Time under employee benefit plans, programs, policies and
arrangements of Revco (including any rabbi trust agreement) in
accordance with the terms thereof. In furtherance and not in
limitation of the foregoing, CVS agrees to provide, or cause the
Surviving Corporation to provide, employees of Revco who continue to
be employed by
<PAGE>
Revco as of the Effective Time ("Continuing Employees") for a period
of not less than one year following the Effective Time with (A) annual
compensation not less favorable than the annual compensation which
they were receiving immediately prior to the Effective Time, and (B)
benefits which, in the aggregate, are no less favorable than the
benefits provided to such Revco employees immediately prior to the
Effective Time; provided, however, that the CVS incentive bonus plans
or arrangements, the EVA Plan and the Revco 1993 Employee Stock
Purchase Plan shall be disregarded for purposes of this clause (B).
Following such one-year period, Continuing Employees shall be provided
with compensation and benefits no less favorable than the compensation
and benefits provided to similarly situated CVS employees. In addition
to the foregoing, for a period of one year following the Effective
Time, CVS shall, or shall cause the Surviving Corporation to,
establish and maintain a plan to provide severance and termination
benefits to all non-union employees of Revco which are no less
favorable than the severance and termination benefits provided under
Revco's plans and arrangements in effect as of the date of this
Agreement as described in Schedule 5.18(a). Furthermore, with respect
to medical benefits provided to Continuing Employees as of the
Effective Time under CVS' benefit plans, CVS agrees that it will, or
it will cause the Surviving Corporation and its Subsidiaries to, waive
waiting periods and pre-existing condition requirements under such
plans (to the extent waived under Revco's plans), and will give
Continuing Employees credit for any copayments and deductibles
actually paid by such employees under Revco's medical plans during the
calendar year in which the Closing occurs. In addition, service with
Revco shall be recognized for purposes of eligibility under CVS
welfare plans as well as for purposes of CVS' programs or policies for
vacation pay and sick pay. Without limiting the generality of the
foregoing, CVS shall honor all vacation, personal and sick days
accrued by Continuing Employees under Revco's plans, policies,
programs and arrangements immediately prior to the Effective Time.
(b) Revco shall be permitted to pay, under its Economic
Value Added Incentive Bonus Plan (the "EVA Plan"), a bonus to each
participant in the EVA Plan who is actively employed by Revco at the
earlier of (i) the Effective Time and (ii) May 31, 1997, equal to the
bonus such individual is entitled to under the EVA plan based upon the
Company's performance through May 31, 1997 or, if earlier, annualized
performance through the Effective Time. To the extent the Effective
Time is after May 31, 1997, a new plan year shall begin under the EVA
Plan and each participant in the EVA Plan who is actively employed by
Revco at the
<PAGE>
Closing Date will be entitled to receive a bonus based upon annualized
performance through the Closing Date with the size of such bonus
payments to be pro-rated for the part of the new plan year which has
elapsed as of the Closing Date. For the first plan year of CVS ending
after the Closing Date, each Continuing Employee who was a participant
in the EVA Plan shall be entitled to participate in the CVS incentive
bonus plans or arrangements with a target bonus opportunity (when
expressed as a percentage of base pay) not less than such Continuing
Employee's target bonus opportunity (when expressed as a percentage of
base pay) under the EVA Plan for the plan year in which the Closing
Date occurs. The parties agree that Schedule 5.18(b) accurately sets
forth the methodology for calculating bonuses payable under the EVA
Plan.
SECTION 5.19. CVS Board of Directors. The Board of Directors
of CVS shall take such corporate actions as are necessary to provide
that, effective at the Effective Time of the Merger, the individuals
set forth on Schedule 5.19 shall become members of the Board of
Directors of CVS.
SECTION 5.20. Combined Financial Results. CVS covenants and
agrees for the benefit of the persons specified in Schedules 3.27 and
4.26 that, as promptly as practicable following the Effective Time and
in any event no later than the earlier of (i) 45 days after the end of
the calendar month in which the Effective Time occurs and (ii) 60 days
after the Effective Time, it will publicly release the financial
results of CVS and Revco for a 30-day period following the Effective
Time.
SECTION 5.21. Charitable Commitment. CVS agrees that for a
period of three years following the Effective Time, CVS will continue
to maintain a charitable commitment in the Cleveland area (including
suburbs) commensurate with the level previously maintained by Revco,
such commitment to take the form of and include contributions,
sponsorship of charitable events and similar activities in the nature
of the contributions and activities set forth on Schedule 5.21;
provided that CVS shall not be required to expend more than $1,000,000
annually in respect of such commitment.
ARTICLE 6
CONDITIONS TO THE MERGER
SECTION 6.01. Conditions to the Obligations of Each Party.
The obligations of Revco, CVS 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:
<PAGE>
(a) (i) this Agreement and the transactions contemplated
hereby shall have been approved and adopted by the stockholders of
Revco in accordance with the Delaware Law and (ii) if required by the
applicable rules of the NYSE, by the stockholders of CVS;
(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 entity, (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
CVS or Revco any damages the amount of which would be reasonably
likely to have a Material Adverse Effect on Revco and CVS, taken as a
whole, or (ii) except to the extent consistent with the obligations of
Revco and CVS under Section 5.07, seeking to prohibit or limit the
ownership or operation by CVS, Revco or any of their respective
Subsidiaries of, or to compel CVS, Revco or any of their respective
Subsidiaries to dispose of or hold separate, any material portion of
the business or assets of CVS, Revco 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; and
(f) the shares of CVS Common Stock to be issued in the
Merger shall have been approved for listing on the NYSE, subject to
official notice of issuance.
SECTION 6.02. Conditions to the Obligations of CVS and
Merger Subsidiary. The obligations of CVS and Merger Subsidiary to
consummate the Merger are subject to the satisfaction (or waiver by
CVS) of the following further conditions:
(a) (i) Revco 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 Revco 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
<PAGE>
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 CVS shall have received a
certificate signed by an executive officer of Revco to the effect set
forth in clauses (i) and (ii).
SECTION 6.03. Conditions to the Obligations of Revco. The
obligations of Revco to consummate the Merger are subject to the
satisfaction (or waiver by Revco) of the following further conditions:
(a) (i) CVS 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 CVS 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 Revco
shall have received a certificate signed by an executive officer of
CVS to the effect set forth in clauses (i) and (ii); and
(b) Revco shall have received an opinion of Cravath, Swaine
& Moore in form and substance reasonably satisfactory to Revco, 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, to the effect that neither it nor any of its
stockholders shall recognize gain or loss for U.S. federal income tax
purposes as a result of the Merger (other than in respect of any cash
paid in lieu of fractional shares). In rendering the opinions
described in the preceding sentence, such counsel may require and rely
upon representations contained in certificates of officers and
principal stockholders of Revco, CVS 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
stockholders of Revco or CVS):
(a) by mutual written consent of Revco and CVS;
<PAGE>
(b) by either Revco or CVS,
(i) if the Merger has not been consummated by September
30, 1997 (the "End Date"); or
(ii) if the Revco Stockholder Approval or the CVS
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 Revco or CVS (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 Revco or CVS from consummating the Merger is entered and
such injunction, judgment, order or decree shall become final and
nonappealable;
(d) by Revco:
(i) if prior to the Revco Stockholder Meeting, the
Board of Directors of Revco shall have failed to recommend
or withdrawn or modified or changed in a manner adverse to
CVS its approval or recommendation of this Agreement or the
Merger or shall have recommended a Superior Proposal, or
Revco shall have entered into a definitive agreement
providing for a Superior Proposal with a Person other than
CVS or its Subsidiaries (or the Board of Directors of Revco
resolves to do any of the foregoing), in each case in
accordance with and to the extent permitted by Section
5.03(a); provided that Revco shall have given CVS at least
forty-eight hours advance actual notice of any termination
pursuant to this Section 7.01(d)(i) and shall have made the
payment referred to in Section 8.04(b) hereof; or
(ii) upon a breach of any representation, warranty,
covenant or agreement of CVS, or if any representation or
warranty of CVS shall become untrue, in either case such
that the conditions set forth in Section 6.03(a) would be
incapable of being satisfied by the End Date;
(e) by CVS:
(i) if the Board of Directors of Revco shall have
failed to recommend or withdrawn, or modified or changed in
a manner adverse to CVS its approval or recommendation of
this Agreement or the Merger or shall have recommended a
Superior Proposal, or Revco shall have entered into a
definitive agreement providing for a Superior Proposal with
a Person
<PAGE>
other than CVS or its Subsidiaries (or the Board of
Directors of Revco resolves to do any of the foregoing); or
(ii) upon a breach of any representation, warranty,
covenant or agreement of Revco, or if any representation or
warranty of Revco shall become untrue, in either case such
that the conditions set forth in Section 6.02(a) would be
incapable of being satisfied by the End Date.
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, (A) 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, and (B) no party that is in material breach of its
obligations hereunder shall be entitled to any payment of any amount
from the other party pursuant to Section 8.04.
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 and in
Sections 5.16 and 8.04 and in the Confidentiality Agreement shall
survive the termination hereof 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:
<PAGE>
if to CVS, to:
CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Fax: (401) 762-3012
Attention: Thomas M. Ryan, Vice Chairman and
Chief Operating Officer
<PAGE>
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 Revco, to:
Revco D.S., Inc.
1925 Enterprise Parkway
Twinsburg, OH 44087
Fax: (216) 487-1679
Attention: Jack A. Staph, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019-7475
Fax: (212) 474-3700
Attention: Alan C. Stephenson, 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
<PAGE>
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 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 Confidentiality 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, 5.18 and 5.20 are intended to confer rights and remedies on the
Persons specified therein).
(b) The representations and warranties contained herein or
in any schedule, instrument or other writing delivered pursuant hereto
shall not survive the Effective Time.
SECTION 8.03. 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 Revco and CVS 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 (i) Revco, there shall be made no amendment that by law requires
further approval by stockholders without the further approval of such
stockholders and (ii) CVS, 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) Revco shall terminate this Agreement pursuant to
Section 7.01(d)(i) hereof, or (y) CVS shall terminate this Agreement
pursuant to Section
<PAGE>
7.01(e)(i) hereof, or (z) either party shall terminate this Agreement
pursuant to Section 7.01(b)(ii) in circumstances where the Revco
Stockholder Approval has not been obtained and Revco has not complied
with its obligation to recommend the Revco Stockholder Approval in
accordance with Section 5.03(a), then in any such case as described in
clause (x), (y) or (z) (each such case of termination being referred
to as a "Trigger Event"), Revco shall pay to CVS (by wire transfer of
immediately available funds not later than the date of termination of
this Agreement) an amount equal to $80,000,000 plus all out-of-pocket
expenses (not to exceed $5,000,000) incurred by CVS in connection with
this Agreement, the Merger and the other transactions contemplated
hereby. Acceptance by CVS of the payment referred to in the foregoing
sentence shall constitute conclusive evidence that this Agreement has
been validly terminated.
(c) If either party shall terminate this Agreement pursuant
to Section 7.01(b)(ii) in circumstances where the CVS Stockholder
Approval has not been obtained and CVS has not complied with its
obligation to recommend the CVS Stockholder Approval in accordance
with Section 5.03(b), then CVS shall pay to Revco (by wire transfer of
immediately available funds not later than the date of termination of
this Agreement) an amount equal to $80,000,000 plus all out-of- pocket
expenses (not to exceed $5,000,000) incurred by Revco in connection
with this Agreement, the Merger and the other transactions
contemplated hereby.
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 CVS 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 CVS, it being understood that no such assignment shall
relieve CVS 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
Delaware (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 Delaware or any
Delaware state court, and each of the parties hereto hereby consents
to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
waives any objection to venue laid therein. Process in any such suit,
action or proceeding may
<PAGE>
be served on any party anywhere in the world, whether within or
without the State of Delaware. 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 6, 1997.
SECTION 8.10. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or
against its regulatory policy, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or
invalidated. Upon such determination that any term, provision,
covenant or restriction of this Agreement is invalid, void,
unenforceable or against regulatory policy, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
SECTION 8.11. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and
that the parties shall be entitled to an injunction or injunctions to
prevent breaches of this Agreement and to enforce specifically the
terms and provisions of this Agreement in any Federal court located in
the State of Delaware or any Delaware 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. CVS and Merger
Subsidiary hereby agree that they will be jointly and severally liable
for all covenants,
<PAGE>
agreements, obligations and representations and warranties made by
either of them in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers
as of the day and year first above written.
CVS CORPORATION
By: /s/ Stanley P. Goldstein
---------------------------
Name: Stanley P. Goldstein
Title: Chairman and Chief
Executive Officer
REVCO D.S., INC.
By: /s/ D. Dwayne Hoven
------------------------------
Name: D. Dwayne Hoven
Title: Chief Executive Officer
NORTH ACQUISITION CORP.
By: /s/ Thomas M. Ryan
----------------------------
Name: Thomas M. Ryan
Title: Vice Chairman and
Chief Operating Officer
STOCKHOLDER AGREEMENT
AGREEMENT dated as of February 6, 1997 between CVS Corporation, a
Delaware corporation ("CVS"), and Zell/Chilmark Fund, L.P., a Delaware
limited partnership (the "Stockholder").
W I T N E S S E T H:
WHEREAS, immediately prior to the execution of this Agreement,
CVS, Revco D.S., Inc., a Delaware corporation (the "Company"), and
North Acquisition Corp., a Delaware corporation ("Merger Subsidiary"),
have entered into an Agreement and Plan of Merger (as such agreement
may hereafter be amended from time to time, the "Merger Agreement"),
pursuant to which Merger Subsidiary will be merged with and into the
Company (the "Merger"); and
WHEREAS, as an inducement and a condition to entering into the
Merger Agreement, CVS has requested that the Stockholder agree, and
the Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises, representations, warranties, covenants and agreements
contained herein, the parties hereto, intending to be legally bound
hereby, agree as follows:
SECTION 1. Certain Definitions. Capitalized terms used and not
defined herein have the respective meanings ascribed to them in the
Merger Agreement. For purposes of this Agreement:
(a) "Affiliate" shall mean, when used with respect to any Person,
any other Person directly or indirectly controlling, controlled by or
under common control with such Person. As used in this definition, the
term "control" means possession, directly or indirectly, of the power
to direct or control the direction of management or policies of a
Person, whether through the ownership of voting securities, by
contract or otherwise. Notwithstanding the foregoing, "Affiliate" when
used with respect to the Stockholder shall exclude any entity that
would otherwise be an Affiliate hereunder but that is not 100%
Beneficially Owned by Samuel Zell.
<PAGE>
(b) "Beneficially Own" or "Beneficial Ownership" with respect to
any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), including
pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting of the same securities by
the same holder, securities Beneficially Owned by a Person shall
include securities Beneficially Owned by all other Persons with whom
such Person would constitute a "group" within the meaning of Section
13(d) of the Exchange Act with respect to securities of the same
issuer.
(c) "Company Common Stock" shall mean at any time the common
stock, $.01 par value, of the Company.
(d) "Existing Shares" shall mean the shares of Company Common
Stock Beneficially Owned by the Stockholder on the date hereof.
(e) "Shares" shall mean the Existing Shares and any shares of
Company Common Stock and/or other equity securities of the Company
acquired by the Stockholder in any capacity after the date hereof and
prior to the termination of this Agreement, whether upon the exercise
of options, warrants or rights, the conversion or exchange of
convertible or exchangeable securities, or by means of purchase,
dividend, distribution, split-up, recapitalization, combination,
exchange of shares or the like, gift, bequest, inheritance or as a
successor in interest in any capacity or otherwise Beneficially Owned
by the Stockholder.
SECTION 2. Voting of Company Common Stock. The Stockholder hereby
agrees that at any meeting (whether annual or special and whether or
not an adjourned or postponed meeting) of the holders of Company
Common Stock, however called, or in connection with any written
consent of the holders of Company Common Stock, the Stockholder will
appear at the meeting or otherwise cause the Shares to be counted as
present thereat for purposes of establishing a quorum and the
Stockholder shall vote or consent (or cause to be voted or consented)
the Shares held of record or Beneficially Owned by the Stockholder in
favor of the Merger, the execution and delivery by the Company of the
Merger Agreement and the approval and adoption of the terms thereof
and each of the other actions contemplated by the Merger Agreement and
this Agreement and any actions required in furtherance thereof and
hereof.
<PAGE>
SECTION 3. Covenants, Representations and Warranties of the
Stockholder. The Stockholder hereby represents and warrants to, and
agrees with, CVS as follows:
(a) Ownership of Shares. The Stockholder is the record and
Beneficial Owner of Existing Shares consisting of 13,102,288 shares of
Company Common Stock. On the date hereof, the Existing Shares
constitute all of the Shares owned of record or Beneficially Owned by
the Stockholder. The Stockholder has sole voting power (except as
provided in the Stockholder's Agreement dated as of June 1, 1992, by
and between Revco and the Stockholder (the "Revco Stockholder
Agreement")) and sole power to issue instructions with respect to the
matters set forth in Section 2 hereof, sole power of disposition
(except as provided in the Agreement of Limited Partnership of
Zell/Chilmark Fund, L.P. (the "Zell Fund Agreement")), sole power of
conversion, sole power to demand appraisal rights and sole power to
agree to all of the matters set forth in this Agreement, in each case
with respect to all of the Existing Shares with no limitations,
qualifications or restrictions on such rights, subject to applicable
securities laws and the terms of this Agreement. Upon consummation of
the Merger, the Stockholder will have sole voting power (except as
provided in the Revco Stockholder Agreement) and sole power to issue
instructions with respect to the matters set forth in Section 4
hereof, sole power of disposition (except as provided in the Zell Fund
Agreement), sole power of conversion, sole power to demand appraisal
rights and sole power to agree to all of the matters set forth in this
Agreement, in each case with respect to all of the shares of CVS
Common Stock it holds of record or Beneficially Owns with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Corporate Authorization. This Agreement has been duly and
validly executed and delivered by the Stockholder and constitutes a
valid and binding agreement enforceable against the Stockholder in
accordance with its terms except to the extent (i) such enforcement
may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors rights and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
<PAGE>
(c) No Conflicts. Except for filings, authorizations, consents
and approvals as may be required under the HSR Act, the 1934 Act and
the 1933 Act, (i) no filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or
authority is necessary for the execution and delivery of this
Agreement by the Stockholder and the consummation by the Stockholder
of the transactions contemplated hereby and (ii) none of the execution
and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance
by the Stockholder with any of the provisions hereof shall (A)
conflict with or result in any breach of the organizational documents
of the Stockholder, (B) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default
(or give rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which the
Stockholder is a party or by which the Stockholder or any of its
properties or assets may be bound, or (C) violate any order, writ,
injunction, decree, judgment, statute, law, rule or regulation
applicable to the Stockholder or any of its properties or assets.
(d) No Encumbrances. Other than as provided in the Revco
Stockholder Agreement as to voting of the Shares and in the Zell Fund
Agreement as to provisions relating to timing of disposition of the
Shares by the Stockholder, and except as applicable in connection with
the transactions contemplated hereby, the Shares and the certificates
representing such Shares are now, and at all times during the term
hereof, will be, held by the Stockholder, or by a nominee or custodian
for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever,
except for any such encumbrances or proxies arising hereunder.
(e) No Finder's Fees. Other than as contemplated by the Merger
Agreement with respect to fees payable by the Company, no broker,
investment banker, financial advisor or other Person is entitled to
any broker's, finder's, financial adviser's or other similar fee or
commission in connection with the transactions
<PAGE>
contemplated hereby based upon arrangements made by or on behalf of
the Stockholder.
(f) No Solicitation. The Stockholder shall not, and shall cause
its Affiliates and officers, directors, employees, investment bankers,
consultants and other agents of the Stockholder and such Affiliates
(such Affiliates, officers, directors, employees, investment bankers,
consultants and other agents of any Person are hereinafter
collectively referred to as the "Representatives" of such Person) not
to, directly or indirectly, take any action to initiate, solicit,
encourage or facilitate the making of any Acquisition Proposal or any
inquiry with respect thereto, or engage in discussions or negotiations
with any Person (other than CVS or any of its Affiliates or
Representatives) relating to any Acquisition Proposal or disclose any
non-public information relating to Revco or any Subsidiary of Revco or
afford access to the properties, books or records of Revco or any
Subsidiary of, Revco, to any Person that has made any Acquisition
Proposal. The Stockholder shall notify CVS orally and in writing of
any offers, proposals or inquiries received by the Stockholder
relating to the purchase or acquisition by any Person of the Shares
and of any Acquisition Proposal actually known to the Stockholder
(including in each case the material terms and conditions thereof and
the identity of the Person making it), within 24 hours of the receipt
thereof. The Stockholder shall, and shall cause its Representatives
to, immediately cease and cause to be terminated any and all existing
activities, discussions or negotiations, if any, with any parties
conducted heretofore with respect to any Acquisition Proposal, other
than discussions or negotiations with CVS and its Affiliates. For
purposes of the foregoing, Representatives of the Stockholder will not
include investment bankers or consultants that approach or contact the
Stockholder, the Company or any other Person, without having been
solicited by the Stockholder, regarding such an offer, proposal or
inquiry so long as the Stockholder does not thereafter encourage or
retain such investment bankers or consultants to pursue such offer,
proposal or inquiry. Notwithstanding the restrictions set forth in
this Section 3(f), each of the Company and any Person who is an
officer or director of the Company may take any action consistent with
the terms of the Merger Agreement.
(g) Restriction on Transfer, Proxies; Non-Interference. The
Stockholder shall not, directly or indirectly: (i) offer for sale,
sell, transfer, tender,
<PAGE>
pledge, encumber (other than by operation of law), assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition
of, any or all of the Shares or any interest therein; (ii) except as
contemplated by this Agreement, grant any proxies or powers of
attorney, deposit the Shares into a voting trust or enter into a
voting agreement with respect to the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder
contained herein untrue or incorrect or would result in a breach by
the Stockholder of its obligations under this Agreement or a breach by
the Company of its obligations under the Merger Agreement or the
effect of which would be inconsistent or violative of any provision or
agreement contained in this Agreement.
(h) Reliance by CVS. The Stockholder understands and acknowledges
that CVS is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement.
SECTION 4. Representations and Warranties of CVS. CVS hereby
represents and warrants to the Stockholder as follows:
(a) Organization. CVS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
has all requisite corporate power and authority to execute and deliver
this Agreement and perform its obligations hereunder. The execution
and delivery by CVS of this Agreement and the performance by CVS of
its obligations hereunder have been duly and validly authorized by the
Board of Directors of CVS and no other corporate proceedings on the
part of CVS are necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(b) Corporate Authorization. This Agreement has been duly and
validly executed and delivered by CVS and constitutes a valid and
binding agreement of CVS enforceable against CVS in accordance with
its terms except to the extent (i) such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors
rights and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses
<PAGE>
and to the discretion of the court before which any
proceeding therefor may be brought.
(c) No Conflicts. Except for filings, authorizations, consents
and approvals as may be required under the HSR Act, the 1934 Act and
the 1933 Act, (i) no filing with, and no permit, authorization,
consent or approval of, any state or federal governmental body or
authority is necessary for the execution and delivery of this
Agreement by CVS and the consummation by CVS of the transactions
contemplated hereby and (ii) none of the execution and delivery of
this Agreement by CVS, the consummation by CVS of the transactions
contemplated hereby or compliance by CVS with any of the provisions
hereof shall (A) conflict with or result in any breach of the
certificate of incorporation or by-laws of CVS, (B) result in a
violation or breach of, or constitute (with or without notice or lapse
of time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, loan
agreement, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or
obligation of any kind to which CVS is a party or its properties or
assets may be bound, or (C) violate any order, writ, injunction,
decree, judgment, statute, law, rule or regulation applicable to CVS
or any of its properties or assets.
(d) No Finder's Fee. Except for Donaldson, Lufkin & Jenrette
Securities Corporation and CS First Boston Corporation whose fees will
be paid by CVS, no broker, investment banker, financial adviser or
other Person is entitled to any broker's, finder's, financial
adviser's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on
behalf of CVS.
SECTION 5. Stop Transfer; Legend. (a) The Stockholder agrees
with, and covenants to, CVS that the Stockholder shall not request
that the Company register the transfer (book-entry or otherwise) of
any certificate or uncertificated interest representing any of the
Shares unless such transfer is made in compliance with this Agreement.
(b) In the event of a stock dividend or distribution, or any
change in the Company Common Stock by reason of any stock dividend,
split-up, recapitalization, combination, exchange of shares or
<PAGE>
the like other than pursuant to the Merger, the term "Shares" shall be
deemed to refer to and include the shares of Company Common Stock as
well as all such stock dividends and distributions and any shares into
which or for which any or all of the Shares may be changed or
exchanged and appropriate adjustments shall be made to the terms and
provisions of this Agreement.
(c) The Stockholder will, prior to the Effective Time, duly
execute and deliver to CVS the Affiliate's letter contemplated in
Section 5.11 of the Merger Agreement substantially in the form of
Exhibit C-3 to the Merger Agreement.
(d) The Stockholder shall promptly after the date hereof
surrender to the Company all certificates representing the Shares, and
the Company shall place the following legend on such certificates:
"THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A STOCKHOLDER
AGREEMENT DATED AS OF FEBRUARY 6, 1997
BY AND BETWEEN CVS CORPORATION AND
ZELL/CHILMARK FUND, L.P. WHICH AMONG
OTHER THINGS RESTRICTS THE TRANSFER AND
VOTING THEREOF."
SECTION 6. Termination. The provisions of this Agreement shall
terminate upon the earlier to occur of (i) the Effective Time and (ii)
the termination of the Merger Agreement in accordance with its terms.
SECTION 7. Confidentiality. The Stockholder recognizes that
successful consummation of the transactions contemplated by this
Agreement may be dependent upon confidentiality with respect to the
matters referred to herein. In this connection, pending public
disclosure thereof, the Stockholder hereby agrees not to disclose or
discuss such matters with anyone not a party to this Agreement (other
than to the Company and to its and the Company's counsel and advisors)
without the prior written consent of CVS, except for filings required
pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures its counsel advises are necessary in order to fulfill
its obligations imposed by law, in which event the Stockholder shall
give prior notice of such disclosure to CVS as promptly as practicable
so as to enable CVS to seek a protective order from a court of
competent jurisdiction with respect thereto.
<PAGE>
SECTION 8. Disclosure. (a) The Stockholder hereby agrees to
permit CVS to publish and disclose in the Form S-4 and the CVS Proxy
Statement (including all documents, exhibits and schedules filed with
the SEC), and any press release or other disclosure document which
CVS's counsel advises are necessary or desirable in connection with
the Merger and any transactions related thereto, the Stockholder's
identity and ownership of Company Common Stock or shares of CVS Common
Stock, as the case may be, and the nature of its commitments,
arrangements and understandings under this Agreement.
(b) The Stockholder hereby agrees to permit Revco to publish and
disclose in the Revco Proxy Statement (including all documents,
exhibits and schedules filed with the SEC), and any press release or
other disclosure document which Revco, in its sole discretion,
determines to be necessary or desirable in connection with the Merger
and any transactions related thereto, the Stockholder's identity and
ownership of Company Common Stock or shares of CVS Common Stock, as
the case may be, and the nature of its commitments, arrangements and
understandings under this Agreement.
SECTION 9. Miscellaneous. (a) Entire Agreement. This Agreement,
the Merger Agreement and the Registration Rights Agreement referred to
therein constitute the entire agreement between the parties with
respect to the subject matter hereof and thereof and supersedes all
other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and
thereof.
(b) Binding Agreement. The Stockholder agrees that this Agreement
and the obligations hereunder shall attach to the Shares and shall be
binding upon any Person to which legal or Beneficial Ownership of such
Shares shall pass, whether by operation of law or otherwise,
including, without limitation, the Stockholder's heirs, distributees,
guardians, administrators, executors, legal representatives, or
successors, partners or other transferees (for value or otherwise) and
any other successors in interest. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor. Nothing in this
clause (b) shall permit any transfer of Shares otherwise prohibited by
the provisions of this Agreement.
<PAGE>
(c) Assignment. No party may assign any of its rights or
obligations hereunder, by operation of law or otherwise, without the
prior written consent of the other party; provided that CVS may
assign, in its sole discretion, its rights and obligations hereunder
to any direct or indirect wholly owned subsidiary of CVS, but no such
assignment shall relieve CVS of its obligations hereunder if such
assignee does not perform such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated,
except upon the execution and delivery of a written agreement executed
by the parties hereto.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly received if given) by hand delivery
or telecopy (with a confirmation copy sent for next day delivery via
courier service, such as Federal Express), or by any courier service,
such as Federal Express, providing proof of delivery. All
communications hereunder shall be delivered to the respective parties
at the following addresses:
If to Zell/Chilmark Fund, L.P.
Stockholder: Two CVS Riverside Plaza
Suite 1500
Chicago, Illinois 60606
Attention: Sheli Z. Rosenberg
Telephone No.: (312) 984-9711
Telecopy No.: (312) 984-0317
with a copy to: Rosenberg & Liebentritt
2 North Riverside Plaza
Suite 1601
Chicago, Illinois 60606
Attention: Alisa Singer
Telephone No.: (312) 454-0335
Telecopy No.: (312) 466-3196
If to CVS: CVS Corporation
One CVS Drive
Woonsocket, RI 02895
Attention: Thomas M. Ryan
Telephone: 401-765-1500
Telecopy No.: 401-765-4128
<PAGE>
with a copy to: Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Dennis S. Hersch
Telephone No.: (212) 450-4545
Telecopy No.: (212) 450-5744
or to such other address as the Person to whom notice is given may
have previously furnished to the others in writing in the manner set
forth above.
(f) Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or portion of any
provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had
near been contained herein.
(g) Specific Performance. Each of the parties hereto recognizes
and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain
damages for which it would not have an adequate remedy at law for
money damages, and therefore each of the parties hereto agrees that in
the event of any such breach the aggrieved party shall be entitled to
the remedy of specific performance of such covenants and agreements
and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law
or in equity shall be cumulative and not alternative, and the exercise
of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any
right, power or remedy provided under this Agreement or otherwise
available in respect hereof at law or in equity, or to insist upon
compliance by any other party hereto with its obligations hereunder,
and
<PAGE>
any custom or practice of the parties at variance with the terms
hereof, shall not constitute a waiver by such party of its right to
exercise any such or other right, power or remedy or to demand such
compliance.
(j) No Third Party Beneficiaries. Except for Section 8(b) hereof,
this Agreement is not intended to be for the benefit of, and shall not
be enforceable by, any Person who or which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware, without giving
effect to the principles of conflicts of law thereof.
(l) Jurisdiction. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of
Delaware in any action, suit or proceeding arising in connection with
this Agreement, and agrees that any such action, suit or proceeding
shall be brought only in such court (and waives any objection based on
forum non conveniens or any other objection to venue therein);
provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this Section 9(l) and shall not be deemed to be
a general submission to the jurisdiction of said Court or in the State
of Delaware other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such
action, suit or proceeding.
(m) Further Assurances. From time to time, at the other party's
request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such
further lawful action as may be necessary or desirable to consummate
and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement.
(n) Descriptive Headings. The descriptive headings used herein
are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this
Agreement.
(o) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
<PAGE>
IN WITNESS WHEREOF, CVS and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above
written.
CVS CORPORATION
By: /s/ Stanley P. Goldstein
---------------------------
Name: Stanley P. Goldstein
Title: Chairman and Chief
Executive Chief
ZELL/CHILMARK FUND, L.P.
By: ZC Limited Partnership,
general partner
By: ZC Partnerships, general partner
By: ZC Inc., a partner
By: /s/ Sheli Z. Rosenberg
----------------------------
Name: Sheli Z. Rosenberg
Title: Vice President
CVS AGREES TO ACQUIRE REVCO IN $2.8 BILLION STOCK TRANSACTION
- Combined Company Will Rank First in U.S. Store Locations,
Second in Revenues with $13.0 Billion -
- Excellent Fit: Companies Operate in Contiguous Markets,
With Similar-Size Stores and Merchandising Strategies -
- Opportunities to Increase Growth and Profitability
by Further Enhancing Revco's Strong Performance -
WOONSOCKET, RI and TWINSBURG, OH, February 7, 1997 - CVS (NYSE: CVS),
a leading drugstore chain in the Northeast and Middle Atlantic
regions, and Revco (NYSE: RXR), with leading positions in the Midwest
and Southeast, today announced that they have signed a definitive
agreement providing for the combination of CVS and Revco in a stock
transaction valued at approximately $2.8 billion, plus the assumption
of approximately $900 million of Revco debt.
The combination of CVS and Revco, which was unanimously approved by
the Boards of Directors of both companies, brings together two of the
leading companies in the industry to create the nation's largest chain
drug store company based on store count, with approximately 4,000
locations in 24 states and the District of Columbia. The combination
will result in leading positions in the Northeast, Mid-Atlantic,
Southeast and Midwest regions; and the combined enterprise will rank
second in annual retail drug store revenues in 1997, with
approximately $13.0 billion.
Under terms of the agreement, CVS will combine with Revco in an
exchange of stock that is expected to qualify for treatment as a
pooling of interests transaction and be tax-free to Revco
shareholders. For each share of Revco stock they hold, Revco
shareholders will receive the sum of (i) 0.4692 shares of CVS common
stock and (ii) the number of shares of CVS stock determined by
dividing $20 by the CVS Average Closing Price (collectively, the
"Conversion Ratio"), provided that under no circumstances will the
Conversion Ratio exceed 1.0097 or be less than 0.8837. The CVS Average
Closing Price will be determined by randomly selecting ten trading
days out of the twenty trading days ending on the fifth trading day
preceding the closing date. For example, assuming an Average CVS
Closing Price of $44.00 (the price at which CVS closed yesterday on
the New York Stock Exchange), Revco shareholders would receive 0.9237
shares of CVS common stock (valued at $40.64 per share based upon such
closing price) for each share of Revco common stock they hold.
<PAGE>
Stanley P. Goldstein, Chairman and Chief Executive Officer of CVS,
said: "This is a major step in our ongoing plan to position CVS as one
of the nation's preeminent growth companies. We already had the size
and scope, and the operational and financial strength, needed to
continue to do very well. But to meet our long-term growth and profit
objectives and to continue to be recognized as one of the best retail
growth companies, we felt we should explore opportunities to
accelerate our growth and enhance our strengths. This transaction
provides a compelling opportunity to meet those objectives, to move us
into two very attractive new markets - the Midwest and Southeast -
and, most important, to generate increased shareholder value."
Thomas M. Ryan, CVS' Vice Chairman and Chief Operating Officer, said:
"This transaction brings together two strong companies that each have
excellent track records. Importantly, it meets each of the three
criteria for strategic acquisitions we have stated in the past: First,
it is accretive; the combination is expected to produce $100 million
in annual cost savings. Second, it brings us into new markets,
including the high-growth Southeast. Third, it offers significant
upside potential, by combining the technological, marketing and sales
expertise of both companies to further enhance operating performance.
"CVS and Revco are highly compatible. Our stores are of similar size.
We operate in contiguous markets, with little geographic overlap. Both
companies have developed strong expertise in serving the managed care
marketplace, and we both place great emphasis on customer service,
quality, value, and corporate citizenship. Thus, the operational and
cultural integration should be relatively smooth," Mr. Ryan said.
D. Dwayne Hoven, President and Chief Executive Officer of Revco, said:
"In evaluating its strategic opportunities in a rapidly consolidating
industry, the Revco Board of Directors determined that this business
combination offers the best opportunity to achieve our primary
objective: building the value of Revco for all Revco shareholders. I
know of no other group of people anywhere who have accomplished what
the men and women of Revco have. In the face of adversity, they
brought a company from bankruptcy to a premier position in the
industry. The strength of our company is directly attributable to the
efforts of these men and women."
Following completion of the transaction, CVS will implement an
aggressive new-store opening program, calling for approximately 300
new stores or relocations per year. The combination offers significant
opportunities to build value by leveraging the operating strengths of
both companies. Moreover, the combined company will be well-positioned
to expand its managed care business by taking advantage of its
<PAGE>
innovative prescription benefits management (PBM) services and
mail-order capabilities.
The transaction is subject to approval by the shareholders of both
companies, expiration of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, and other customary
closing conditions. It is expected that the transaction will be
completed by mid-year 1997.
Two current Revco Board members will join the CVS Board, increasing
the Board of Directors to 15 members. The combined company will be
called CVS, will be led by CVS' current senior management team and
will be headquartered in Woonsocket, RI. Except for the phase-out of
Revco's Twinsburg, OH headquarters over time, few if any workforce
reductions are expected as a result of the combination.
CVS' financial advisors for the transaction were Donaldson, Lufkin &
Jenrette Securities Corp. (who provided a fairness opinion) and Credit
Suisse First Boston Corporation. Revco was advised and its Board given
a fairness opinion by Wasserstein Perella & Co. Salomon Brothers Inc.
also provided a fairness opinion to Revco.
CVS is currently the nation's fifth largest drug store chain by store
count and sales volume, operating 1,409 stores in 14 states and the
District of Columbia with annual sales of $5.5 billion in 1996. It is
a leading drug store chain in the Northeast and Middle Atlantic
regions, and is a leader in productivity, with $573 in sales per
retail square foot in 1996.
CVS is a stand-alone drug store company which in October 1996 changed
its symbol on the New York Stock Exchange to "CVS" from "MES." In
November, the company changed its name from Melville Corporation to
CVS, reflecting its concentration on the chain drug store business and
the completion of its restructuring program, which was initially
announced in 1994 and was approved by Melville's Board of Directors in
1995. With a strong record of growth over its more than thirty-year
history, CVS continues to achieve strong financial performance.
REVCO is currently one of the nation's largest retail drug store
chains, with expected annual sales of approximately $6.0 billion in
its current fiscal year, which ends May 31, 1997. The company operates
approximately 2,600 stores in 17 Midwestern, Southeastern and Eastern
states.
<PAGE>
B-ROLL AVAILABLE: B-Roll footage for both companies will be fed from
9:00- 9:30 a.m. (EST) and 1:00-1:30 p.m. (EST) and can be accessed as
follows:
9:00-9:30 a.m. (EST) C-Band Galaxy 6; Transponder 17
1:00-1:30 p.m. (EST) C-Band Galaxy 4; Transponder 10
